Cloud computing platform DigitalOcean (NYSE: DOCN) announced better-than-expected revenue in Q3 CY2025, with sales up 15.7% year on year to $229.6 million. Guidance for next quarter’s revenue was better than expected at $237.5 million at the midpoint, 1.3% above analysts’ estimates. Its non-GAAP profit of $0.54 per share was 9.5% above analysts’ consensus estimates.

Is now the time to buy DOCN? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

DigitalOcean’s third quarter results were met with a significant positive market reaction, reflecting strong execution and outperformance versus Wall Street expectations. Management credited the momentum to rapid growth among AI-native customers, an expanding base of high-spend digital enterprises, and increasing customer adoption of agentic cloud capabilities. CEO Padmanabhan Srinivasan highlighted that, “Demand for our agentic cloud has exceeded our supply,” citing the company’s ability to attract and retain larger customers as a notable achievement this quarter. The introduction of new features and a strategic focus on unified cloud offerings further contributed to the company’s robust top-line and margin expansion.

Looking forward, DigitalOcean’s guidance is shaped by continued investments in data center and GPU capacity to meet accelerating AI workload demand and support large-scale customer contracts. Management outlined plans to bring additional infrastructure online throughout 2026, aiming to deliver targeted revenue growth a year ahead of schedule. CFO Matt Steinfort cautioned that, while operating expenses will increase as new capacity is deployed, the company expects to maintain strong adjusted free cash flow margins. Srinivasan added, “We began putting the foundational elements in place in Q3 to accelerate our growth,” emphasizing the importance of scaling infrastructure to keep pace with customer needs.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to surging AI-native customer activity, strategic product innovation, and successful expansion into larger enterprise accounts.

• AI-native customer momentum: DigitalOcean experienced rapid growth from AI-focused companies, many of which transitioned from proof-of-concept projects to production-level workloads. This trend was supported by the successful launch of its Gradient AI agentic cloud platform, which now sees over 19,000 AI agents created, with 7,000 deployed in production environments.

• Expansion of high-spend enterprise accounts: The number of customers with more than $1 million in annualized run rate increased significantly, with revenue from this segment growing 72% year-over-year. Large-scale, multi-year contracts—including several 8-figure deals—demonstrate DigitalOcean’s ability to attract and retain sizable enterprise clients.

• Unified cloud capability adoption: New features such as enterprise-grade cold storage and managed databases with automated scaling were rapidly adopted by high-value customers. Over 35% of customers with more than $100,000 in annual spend have integrated at least one of these new features, leading to accelerated growth within this cohort.

• Strategic partnerships and ecosystem development: The launch of the DigitalOcean AI Partner program expanded the company’s ecosystem, enabling deeper integration with AI-native businesses and solution providers. Strategic partnerships, like the one with FAL.ai, are designed to broaden use cases and drive further adoption of its unified cloud platform.

• Financial discipline alongside growth: The company balanced top-line acceleration with strong adjusted free cash flow generation, utilizing equipment leasing to align investments with revenue growth and repurchasing outstanding convertible notes to strengthen the balance sheet.

Drivers of Future Performance

DigitalOcean’s outlook is defined by anticipated AI-driven demand, accelerated infrastructure investments, and a focus on sustaining high-margin growth despite increased operating costs.

• Scaling AI and enterprise workloads: Management expects continued expansion in AI-native and digital enterprise customer segments, supported by additional data center and GPU capacity coming online in 2026. This infrastructure is designed to accommodate new large-scale contracts and maintain the company’s competitive edge in supporting inference-heavy workloads.

• Product innovation and ecosystem growth: The company plans to accelerate its product roadmap, prioritizing features needed by rapidly growing AI-native clients, such as advanced orchestration, storage, and security. The DigitalOcean AI Partner program is expected to enhance the platform’s value and attract new customers through an expanded partner network.

• Margin management amid investment: While management projects increased operating expenses as new infrastructure is deployed, they remain committed to sustaining mid- to high-teen adjusted free cash flow margins. The use of equipment leasing and disciplined capital allocation are intended to mitigate near-term margin pressures as the company invests for future growth.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will closely monitor (1) the pace at which DigitalOcean brings new data center and GPU capacity online to meet surging AI demand; (2) adoption and monetization of new platform features by large enterprise and AI-native customers; and (3) the company’s ability to maintain high adjusted free cash flow margins as operating investments accelerate. The trajectory of large contract wins and ecosystem expansion will also be important indicators of sustained growth.

DigitalOcean currently trades at $45.95, up from $38.81 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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