Investing analyses

# DOCN — Stock Analysis (Atlas)

> Date: 2026-04-01
> Quarter: Q4 FY25 (Dec-25) — most recent reported
> Market cap: ~$8.0B (basic) | EV: ~$9.0B | EV/TTM Rev: 10.0x | Revenue growth: 18.3% YoY (accelerating)
> Stock price: ~$87 | Shares outstanding: 91.9M basic / 111.5M diluted

## Verdict

DigitalOcean is a mid-growth cloud platform executing a credible pivot to AI inference, with revenue growth accelerating from an 11% trough (Q4 FY23) to 18.3% (Q4 FY25) and guided to 21% for FY26 and 30% for FY27. The AI inference thesis is differentiated — 70% of AI customer ARR is from inference services and core cloud, not bare metal GPU rental. However, the stock trades at 10x EV/TTM revenue for 18% current growth, implying the market is pricing in substantial acceleration. Gross margins are below my 60% threshold and under pressure from AI mix shift. The balance sheet carries $1.04B net debt with $325M in converts due December 2026. This is a "show me" story — the growth acceleration is real but the premium valuation demands flawless execution on the 31MW capacity ramp.

**Conviction: 2.5/5** — Interesting transformation story but fails two qualification criteria (growth and gross margin), valuation assumes acceleration that hasn't fully materialized, and balance sheet leverage adds execution risk.

## Qualification Gate

| Criterion | Threshold | Actual | Pass/Fail |
|-----------|-----------|--------|-----------|
| Revenue YoY growth | >30% (>40% preferred) | 18.3% (guided 21% FY26, 30% FY27) | **FAIL** |
| Gross margin | >60% (>70% preferred) | 58.7% GAAP, declining | **FAIL** |
| Revenue per quarter | >$50M | $242M | PASS |
| Data availability | 4+ quarters | 16 quarters | PASS |
| Share dilution | <10% annual | -0.3% basic (buybacks), diluted inflated by converts | PASS |
| GAAP profitability trajectory | Improving or positive | GAAP profitable FY25 $259M (includes one-timers) | PASS |

**Gate verdict: CONDITIONAL FAIL.** DOCN fails on growth rate and gross margin. The g

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# DOCN — Stock Analysis (April 2026)

**Thesis: DigitalOcean is a genuine growth re-acceleration story with textbook leading indicator divergence. At 8.2x run-rate P/S with a clear path from 18% to 30% revenue growth, this is the cheapest credible acceleration story in cloud. The debt is the only thing keeping me from making it a top-5 position.**

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## Revenue Trajectory — The QoQ Grid

This is where the story lives. Quarters down, years across:

### Sequential QoQ Growth

|  | CY22 | CY23 | CY24 | CY25 | Trend |
|---|---|---|---|---|---|
| Q1 (Mar) | -- | +1.3% | +2.1% | +2.8% | **Accelerating** |
| Q2 (Jun) | +5.2% | +2.8% | +4.2% | +3.8% | Stable |
| Q3 (Sep) | +13.6% | +4.3% | +3.1% | +5.0% | **Reaccelerating** |
| Q4 (Dec) | +7.2% | +2.1% | +3.2% | +5.6% | **Accelerating** |

Three of four quarters show clear reacceleration in CY25 vs CY24 and CY23. Q4 went from 2.1% to 3.2% to 5.6% -- that 5.6% QoQ annualises to **24.4%**. This is not subtle.

### YoY Growth (same quarter across years)

|  | CY23 | CY24 | CY25 | Direction |
|---|---|---|---|---|
| Q1 (Mar) | 29.7% | 11.8% | 14.1% | **Turned up** |
| Q2 (Jun) | 26.8% | 13.3% | 13.6% | Stable |
| Q3 (Sep) | 16.4% | 12.1% | 15.7% | **Turned up** |
| Q4 (Dec) | 11.0% | 13.3% | 18.3% | **Accelerating** |

The last 6 quarters of YoY growth: **13.3% -> 14.1% -> 13.6% -> 15.7% -> 18.3%** -> guided 18-19% for Q1 FY26. That is a 500bps YoY acceleration in Q4 vs prior year. This is a company that bottomed at 11% YoY growth in Q4 CY23 and is now at 18% with management targeting 25%+ exit rate for CY26 and 30% for full-year CY27.

### Revenue Grid ($m)

|  | CY22 | CY23 | CY24 | CY25 |
|---|---|---|---|---|
| Q1 (Mar) | 127.3 | 165.1 | 184.7 | 210.7 |
| Q2 (Jun) | 133.9 | 169.8 | 192.5 | 218.7 |
| Q3 (Sep) | 152.1 | 177.1 | 198.5 | 229.6 |
| Q4 (Dec) | 163.0 | 180.9 | 204.9 | **242.4** |
| **Full Year** | **576.3** | **692.9** | **780.6** | **901.4** |
| **FY YoY** | -- | **20.2%** | **12.7%** | **15.5%** |

FY25 at $9

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# DOCN — Stock Analysis (April 2026)

## What DigitalOcean Does

DigitalOcean is a cloud infrastructure provider historically focused on SMBs, developers, and startups. It's now pivoting to position itself as an "agentic inference cloud" — targeting AI-native companies that need GPU inference capacity alongside traditional cloud primitives (compute, storage, networking). Revenue is usage-based with recurring characteristics. ~640,000 customers, top 25 = ~10% of revenue.

## The Numbers

### Revenue Trajectory (8 Quarters)

| | Q124 | Q224 | Q324 | Q424 | Q125 | Q225 | Q325 | Q425 |
| | Mar-24 | Jun-24 | Sep-24 | Dec-24 | Mar-25 | Jun-25 | Sep-25 | Dec-25 |
|---|---|---|---|---|---|---|---|---|
| Revenue ($m) | 184.7 | 192.5 | 198.5 | 204.9 | 210.7 | 218.7 | 229.6 | 242.4 |
| YoY % | 11.8% | 13.3% | 12.1% | 13.3% | 14.1% | 13.6% | 15.7% | 18.3% |
| QoQ Rev Add ($m) | 3.8 | 7.8 | 6.0 | 6.4 | 5.8 | 8.0 | 10.9 | 12.8 |
| ARR ($m) | 739 | 781 | 798 | 820 | 843 | 875 | 919 | 970 |
| NDR % | 97% | 97% | 97% | 99% | 100% | 99% | 99% | 101% |
| GM % [GAAP] | 59.1% | 61.0% | 60.2% | 61.5% | 61.4% | 59.9% | 59.6% | 58.7% |
| EBITDA Margin % | 40.2% | 42.4% | 43.7% | 41.9% | 41.0% | 40.9% | 43.5% | 41.0% |
| FCF Margin % | 18.6% | 19.4% | 13.2% | 17.9% | 16.3% | 26.1% | 37.0% | 11.1% |
| SBC ($m) | 22.9 | 21.8 | 22.9 | 22.9 | 19.4 | 21.1 | 19.8 | 20.0 |

### Valuation Context

| Metric | Value |
|---|---|
| Stock Price | ~$87 |
| Market Cap | $9.0B |
| Enterprise Value | $10.4B |
| Trailing P/S (TTM $901M) | 10.0x |
| Forward P/S (FY26E $1.09B) | 8.3x |
| EV/Gross Profit (TTM $540M) | 19.3x |
| EV/EBITDA (TTM $375M) | 27.7x |
| Net Debt | $1.04B |
| Shares Diluted | ~111M |

### Customer Cohort Data (Q4 FY25)

| Tier | ARR | YoY Growth | NDR |
|---|---|---|---|
| Total | $970M | +18% | 101% |
| DNE (>$500/mo) | $640M | +30% | 102% |
| $100K+ (635 customers) | 28% of rev | +58% | -- |
| $1M+ | $133M | +123% | 115% |
| AI Customers | $120M | +150% | -- |

## First Filter Assessme

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# DOCN (DigitalOcean) — Stock Analysis

> Analyst: Saul Rosenthal | Date: 2026-04-06
> Source: Scout brief (2026-03-25), Q4 FY25 earnings call (2026-02-24)

## Verdict: WATCHLIST — Not Ready for My Portfolio Yet, But Getting Interesting

Let me be straight with you. DigitalOcean at 18% revenue growth, 101% NDR, 59% gross margins, and $1 billion in net debt is NOT a Saul stock today. It doesn't pass my criteria filter. But — and this is important — the *trajectory* of this business has my attention. Revenue growth is accelerating, not decelerating. The top customer cohorts are growing at crazy rates. And the AI inference opportunity looks genuinely durable. I'm putting this on my watchlist and watching very carefully.

## What the Company Does

DigitalOcean is a cloud infrastructure platform — what they now call an "agentic inference cloud" — serving small-to-mid-market companies, particularly AI-native and cloud-native businesses. Think of it as the anti-hyperscaler: simpler, cheaper, more predictable pricing than AWS/Azure/GCP, increasingly focused on AI inference workloads. They hit $1 billion in annualized revenue in December 2025.

## The Numbers

| Quarter | Revenue | YoY% | QoQ $ | GM% | EBITDA M% | FCF M% | NDR | ARR |
|---------|---------|------|-------|-----|-----------|--------|-----|-----|
| Q1 FY24 | $184.7m | 11.8% | +$3.8m | 59.1% | 40.2% | 18.6% | 97% | $739m |
| Q2 FY24 | $192.5m | 13.3% | +$7.8m | 61.0% | 42.4% | 19.4% | 97% | $781m |
| Q3 FY24 | $198.5m | 12.1% | +$6.0m | 60.2% | 43.7% | 13.2% | 97% | $798m |
| Q4 FY24 | $204.9m | 13.3% | +$6.4m | 61.5% | 41.9% | 17.9% | 99% | $820m |
| Q1 FY25 | $210.7m | 14.1% | +$5.8m | 61.4% | 41.0% | 16.3% | 100% | $843m |
| Q2 FY25 | $218.7m | 13.6% | +$8.0m | 59.9% | 40.9% | 26.1% | 99% | $875m |
| Q3 FY25 | $229.6m | 15.7% | +$10.9m | 59.6% | 43.5% | 37.0% | 99% | $919m |
| Q4 FY25 | $242.4m | 18.3% | +$12.8m | 58.7% | 41.0% | 11.1% | 101% | $970m |

**FY25 Total:** $901.4m (+15.5% YoY) | Adj EBITDA: $375m 

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# DigitalOcean (DOCN) — Stock Analysis

**Analyst:** Bert Hochfeld | **Date:** March 25, 2026 | **Price:** ~$85 | **Market Cap:** ~$7.8B | **EV:** ~$9.1B

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## Summary

DigitalOcean has been reinvented. The company I first recommended in August 2021 at an EV/S of 12.6X as a "lower-volatility growth compounder" serving SMBs is today an entirely different business — an AI inference cloud platform with $120M in AI customer ARR growing 150% YoY, a $970M total ARR run rate, and a credible path to 30% revenue growth with Rule of 50 economics by 2027. I initiated a starter position of 500 shares at $59.79 on March 11 and published a detailed deep-dive on March 17. The shares have since appreciated approximately 42%, which requires me to reassess the valuation case at current levels. My conclusion: the thesis remains intact and the long-term opportunity is compelling, but the near-term risk/reward at $85 is less favorable than at $60. I would not chase the stock here. I would wait for a pullback into the $65-$72 range to add meaningfully. The position remains at 2.48% — a starter weight appropriate for the current uncertainty around execution on the capacity ramp and the elevated net leverage.

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## Headline KPIs (Q4 FY25, reported February 24, 2026)

- **Revenue:** $242.4M | +18.3% YoY | +5.6% QoQ (accelerating)
- **FY25 Revenue:** $901M | +15.5% YoY
- **ARR:** $970M | +18% YoY | Record organic incremental ARR of $51M
- **AI Customer ARR:** $120M | +150% YoY | 12% of total ARR
- **DNE ARR:** $640M | +30% YoY | 66% of total ARR
- **$1M+ Customer ARR:** $133M | +123% YoY | Zero churn, 115% NDR
- **NDR (total):** 101% | Crossed back above 100% for first time since Q4 FY23
- **RPO:** $134M | +121% sequential | +~500% YoY
- **Adj EBITDA Margin:** 41.0% (Q4) | 41.6% (FY25)
- **FCF Margin (adj):** 19% trailing 12M
- **GAAP Op Margin:** 16.0% (Q4) | 17.4% (FY25)
- **Non-GAAP EPS:** $0.44 (Q4) | $2.12 (FY25)
- **SBC:** 9% of revenue (down from 12% prior year)
- **$100K+ Custo

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