Why DigitalOcean Stock Soared on Wednesday
Key Points
He feels that his fellow pundits are underestimating the company's growth potential.
In his view, DigitalOcean can particularly benefit from a wave of AI inferencing.
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Cloud computing specialist DigitalOcean (NYSE: DOCN) was, hardly for the first time in recent months, quite the outperformer on the stock market on Wednesday. Giving the stock propulsion was a price target increase from an analyst, which helped DigitalOcean shares gain more than 6% in share price that day.
Advancing with AI
The man behind the move was Param Singh of Oppenheimer. Before market open, he lifted his fair value assessment on DigitalOcean to $100 per share from his preceding $85. He also maintained his outperform (i.e., buy) recommendation on the specialty tech stock.
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Singh's adjustment was derived from a fresh discounted cash flow analysis conducted by the analyst, according to reports. This was inspired by what he considers to be the expanding addressable market for artificial intelligence (AI) inferencing, i.e., the point at which an AI model shifts from learning to practical use.
The analyst also waxed bullish on the generally positive client response to DigitalOcean's offerings, which he considers are competitive in the market. In his view, the current consensus on the company's growth potential is more modest than it should be.
Not the cheapest stock on the block
DigitalOcean is expensive both on pure share price and on valuations. That said, it seems to have found its niche as a cloud computing specialist for AI developers, and its growth continues to be impressive. I'd file this stock under the "pricey but worth it" category.
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Eric Volkman 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.
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