How Much Higher Can DigitalOcean Stock Go?

DigitalOcean (NYSE: DOCN) provides a suite of affordable cloud computing services exclusively to small and medium-sized businesses (SMBs). That was already a lucrative business model, but the company is now also helping its customers deploy artificial intelligence (AI) software, and demand is through the roof.

The company's revenue growth accelerated last year, propelling its stock to a 41% gain. But it's up by a further 77% in 2026 already, as investors anticipate a continued surge in businesses' appetite for AI-related computing capacity. In fact, DigitalOcean recently announced plans to raise $800 million from investors to build more data center infrastructure.

Despite its recent gains, the stock is still trading at a relatively attractive valuation. So, how much higher can it go from here?

Image source: Getty Images.

AI for businesses of all sizes

The cloud computing industry is dominated by trillion-dollar hyperscalers like Amazon and Microsoft. Those providers usually compete for large customers with high spending potential, whereas SMB customers don't really move the needle for them in terms of revenue. As a result, SMBs often don't get the level of service they need from the hyperscalers.

DigitalOcean exclusively targets those customers by offering cheap and transparent pricing, highly personalized service, and a simple dashboard which makes deploying cloud tools very straightforward. These features are ideal for start-ups and SMBs with limited financial and technical resources.

The company is now helping its customers enter the AI era. Its Gradient platform provides them with access to the latest large language models (LLMs) from leading developers like OpenAI and Anthropic, which can be used as a foundation for developing AI software applications.

DigitalOcean also operates data centers fitted with thousands of the latest AI chips from suppliers like Nvidia and Advanced Micro Devices, and it rents the computing capacity to SMBs for a fee. While hyperscale cloud providers try to lease thousands of chips to their customers at a time, DigitalOcean allows its customers to start with just one chip and scale as needed, which is plenty for small workloads like running an AI chatbot or deploying a few AI agents.

The company says its prices are up to 75% cheaper than the hyperscale cloud providers for the same AI chips, which is a substantial saving for its budget-conscious customers.

AI is fueling a growth acceleration

DigitalOcean ended 2025 with a record $970 million in annual run-rate revenue (ARR), which was up 18% year over year. It was the second consecutive quarter in which that growth rate accelerated. AI products and services accounted for $120 million of total ARR, which was up by a whopping 150% year over year.

Demand for data center capacity continues to outstrip supply, which is constraining DigitalOcean's growth potential, hence the recently announced $800 million capital raise to fund more infrastructure. Adding more capacity could supercharge the company's future financial results, with management forecasting overall revenue growth of 21% in 2026, followed by 30% in 2027.

When a company experiences more demand for its services than it can supply, it normally has a substantial amount of pricing power, leading to higher profits. As a result, DigitalOcean generated a record $259.3 million in generally accepted accounting principles (GAAP) net income during 2025, which tripled from the previous year.

Even after excluding a series of one-off tax benefits, the company's adjusted (non-GAAP) earnings before interest, taxes, depreciation, and amortization (EBITDA) still climbed by 14% to $374.8 million.

How much higher can DigitalOcean stock go?

Despite the blistering gains in DigitalOcean stock in 2025 and 2026 to date, it's still trading at a relatively attractive valuation. Its price-to-sales (P/S) ratio is 10.1, which is above its long-term average of 8.1 dating back to its initial public offering in 2021, but that doesn't take the company's anticipated acceleration in revenue growth into account.

For example, DigitalOcean stock is trading at a forward P/S ratio of 7.3 based on its potential 2026 revenue, and a forward P/S ratio of 5.6 based on its potential 2027 revenue.

DOCN PS Ratio data by YCharts.

In other words, the stock would have to soar by 80% by the end of next year just to maintain its current P/S ratio of 10.1. That would result in a stock price of $156, so there appears to be plenty of upside on the table from here.

But there's a catch. Based on DigitalOcean's GAAP earnings of $2.52 per share, its stock is trading at a price-to-earnings (P/E) ratio of 34.5. So it's more expensive than the Nasdaq-100 technology index, which has a P/E ratio of 30 -- and this picture could worsen in the near term.

Building AI infrastructure requires substantial up-front costs, which are then depreciated over several years for accounting purposes, so DigitalOcean's future earnings will face pressure. Therefore, its stock might be more expensive than it appears at face value for investors who are solely relying on the P/E ratio.

The best way to smooth out this noise is to adopt a five-year investment horizon, which will give DigitalOcean sufficient time to convert its AI capital expenditures into durable earnings growth.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, DigitalOcean, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.