I Recently Predicted That DigitalOcean Would Become a Multibagger By Next Year, and It Surged 40% After Its Earnings Report. Is This AI Stock Still a Buy?

Shares of cloud computing company DigitalOcean (NYSE: DOCN) shot up by 40% on May 5 after the company released terrific results for the first quarter of 2026, and anyone following the company's business model may not be entirely surprised by this big pop.

In fact, it was just a few days ago that I predicted DigitalOcean stock could become a multibagger by the end of 2026. So, it was easy to see why investors piled into this cloud stock after it posted a significant surge in AI revenue last quarter and raised its 2027 guidance.

Let's take a closer look at what's working for DigitalOcean and check if this high-flying tech stock has room for more upside.

Image source: Getty Images.

AI has supercharged DigitalOcean's growth

DigitalOcean operates an on-demand cloud computing platform, primarily serving start-ups, developers, and small businesses. The company's focus on making it simpler and cheaper for smaller enterprises to deploy and scale AI applications in the cloud explains why demand for its AI offerings is growing.

DigitalOcean's annual run rate revenue (ARR) from its AI customers soared 221% year over year in Q1 to $170 million. This was well above the 22% growth in its overall ARR last quarter. DigitalOcean's focus on offering an end-to-end cloud computing platform for running agentic artificial intelligence (AI) and inference applications in a more cost-effective, simpler way is resonating with customers.

DigitalOcean customers can rent cloud computing infrastructure, including compute, storage, and networking, from the company. At the same time, its software-as-a-service (SaaS) solutions enable them to build, deploy, and scale AI applications. It is worth noting that DigitalOcean's inference services are proving hugely popular. The company's ARR for its inference services increased by a whopping 487% year over year in Q1.

DigitalOcean's management is confident that the growing adoption of AI inference applications will be a long-term tailwind for the company. This explains why DigitalOcean is building more data centers to capture the available end-market opportunity. The company plans to add 31 megawatts (MW) of data center capacity this year, followed by another 60 MW in 2027 and 2028.

This new capacity should help accelerate DigitalOcean's growth, especially considering that its revenue backlog is now growing at a healthy pace. The company reported a 17.3x increase in its remaining performance obligations (RPO) last quarter to $243 million, which was well above the 22% increase in revenue to $258 million.

RPO is the total value of contracts that a company has yet to fulfill at the end of a period. The exponential growth in this metric suggests that DigitalOcean's growth is poised to accelerate, which explains why it has significantly upgraded its guidance.

DigitalOcean now expects 26% revenue growth in 2026, up from its earlier estimate of 21%. However, it sees a significant jump of more than 50% in revenue in 2027, well above the 30% growth it guided for in February this year. But will this upgraded forecast be enough for it to deliver more gains?

Investors can still expect substantial upside

DigitalOcean stock is already up 223% in 2026 as of this writing. However, it can continue to climb, as its guidance clearly suggests stronger growth is in the cards for the company. This explains why analysts have significantly upgraded their revenue growth expectations.

Data by YCharts

Don't be surprised if DigitalOcean ends up exceeding Wall Street's growth expectations. But even if it achieves $2.47 billion in revenue in 2028 and trades at even 10 times sales at that time, a discount to its current price-to-sales ratio of 18.6, its market cap could jump to $25 billion. That suggests potential gains of 47% over its current market cap.

Of course, I have assumed that DigitalOcean will trade at a premium to the U.S. tech sector's average of 7.5 after three years, but this can be justified by the company's ability to grow revenue much faster than analysts' expectations. So, you can still consider adding this cloud stock to your portfolio as it is primed to deliver more upside.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DigitalOcean. The Motley Fool has a disclosure policy.