DigitalOcean shares have risen 275 percent over the past 12 months, leaving the cloud giants, Amazon, Microsoft and Alphabet, averaging a 31 percent gain over the same stretch. The $14 billion company's second quarter showed revenue growth accelerating to 29 percent from 14 percent a year earlier, driven by an AI product suite aimed at small businesses that cannot afford to build their own data centers.
The numbers behind the move
Revenue reached $281.2 million in the quarter ended June 30, up from $218 million a year earlier. Annual recurring revenue hit $1.1 billion, of which AI customers contributed $234 million, a 212 percent increase from the year-ago period. Remaining performance obligations, a measure of contracted future revenue, jumped twelvefold to $894 million, signaling a backlog of customers waiting for additional data center capacity to come online.
The valuation debate
The stock trades at 14.1 times trailing sales, well above the 8.6 times average since its 2021 listing. On management's forecast of more than 50 percent revenue growth for 2027, the forward multiple drops to 7.2 times. Chief financial officer Matt Steinfort has said the guidance does not reflect all recent progress, implying the forward multiple could compress further if the pace holds.
What to watch
The twelvefold rise in RPO suggests demand is outpacing infrastructure buildout. Execution on the 2027 revenue target will depend on converting that backlog without margin erosion. The inference router, a feature that directs prompts to the cheapest suitable model, may help retain cost-sensitive SMB customers, but the company still relies on third-party chips from Nvidia and Advanced Micro Devices for its 20 data centers.