DigitalOcean's growth rate is showing signs of improvement thanks to the growing adoption of its cloud-based AI offerings.
The company is expecting to clock healthy double-digit growth over the next three years.
DigitalOcean is cheaply valued right now, giving investors another solid reason to buy this AI stock.
Cloud computing solutions provider DigitalOcean (NYSE: DOCN) underperformed the technology sector so far this year, losing almost 10% of its value as of this writing as compared to the 13% gains by the Nasdaq-100 Technology Sector index in 2025.
However, the stock's dip doesn't seem justified considering that it has been delivering consistently strong results in recent quarters. DigitalOcean released solid second-quarter results earlier this month and raised its full-year guidance, driven by the improving demand for its artificial intelligence (AI)-focused cloud infrastructure and software solutions.
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Even better, the stock is trading at an incredibly attractive valuation right now and analysts are expecting it to deliver healthy gains in the coming year. Let's see how much upside investors can expect from DigitalOcean.
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DigitalOcean's adjusted earnings per share have jumped by a healthy 26% in the first half of 2025 to $1.15 per share. The stock is trading at just 23 times trailing earnings despite such impressive growth. Its forward earnings multiple of 15 is even more attractive.
The attractive valuation and DigitalOcean's solid growth make the stock worth buying hand over fist right now, especially considering the potential gains it is expected to deliver in the coming year. DigitalOcean has a 12-month median price target of $42 as per 13 analysts covering the stock. That points toward potential gains of 35% from current levels.
DigitalOcean stock has the potential to deliver such solid gains in the coming year as the market could reward its healthy earnings growth with a richer valuation. After all, the company's strategy of offering scalable cloud AI infrastructure to developers, small and medium businesses, and start-ups is paying off.
DigitalOcean is offering an end-to-end AI platform to customers that enables them to build, deploy, and manage AI agents without having to invest in expensive hardware such as graphics processing units (GPUs). The serverless GPU model has found solid traction as DigitalOcean claims it is up to 75% more cost-effective than renting GPUs from hyperscalers.
DigitalOcean customers can rent processors from the likes of Nvidia and Advanced Micro Devices on a pay-as-you-go basis to run AI training and inference applications and create custom AI agents. Importantly, they don't need to spend money on infrastructure management, allowing smaller companies to jump onto the AI bandwagon without breaking the bank.
Not surprisingly, DigitalOcean's management pointed out on its latest earnings conference call that its AI-focused cloud solutions are witnessing rapid adoption. For instance, its Gradient AI platform has been used for making more than 14,000 AI agents by the end of Q2, which is nearly double the number of agents created in Q1. Management added that over "6,000 customers have leveraged this platform since January with 30% of these customers being new to DigitalOcean."
So, DigitalOcean is attracting new customers with the help of its AI platform. Moreover, its customers are now spending more money on the company's offerings. This is evident from the 12% year-over-year jump in its average revenue per customer at the end of Q2.
DigitalOcean is likely to add more customers and also win a bigger share of their wallets. That's because the company claims that users on its platform can reduce their infrastructure costs by 16% and enhance productivity by 5% as compared to hyperscale cloud service providers. Also, DigitalOcean points out that customers migrating to its platform from hyperscalers can expect a payback on their investment in less than six months.
Driven by a combination of new customer acquisitions and higher spending by existing customers, DigitalOcean is expecting annual revenue growth of 18% to 20% through 2027. The company is projecting $890 million in revenue this year, which means that its top line could jump to $1.28 billion in 2027, provided it manages to achieve a 20% growth rate over the next couple of years.
DigitalOcean is currently trading at just 3.6 times sales. That's lower than the Nasdaq Composite index's price-to-sales ratio of 5.1. Assuming DigitalOcean trades in line with the Nasdaq's sales multiple after a couple of years, its market cap could hit $6.5 billion based on the projected 2027 revenue mentioned above.
That points toward potential gains of 132% within the next three years based on its current market cap. As such, DigitalOcean looks like a top AI stock to buy right now since it has the potential to skyrocket impressively in the long run.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, DigitalOcean, and Nvidia. The Motley Fool has a disclosure policy.