Opinion: Buy This Growth Stock to Beat the S&P 500 in 2027

Despite a recent bout of volatility, the S&P 500 (SNPINDEX:^GSPC) stock market index has returned almost 10% in 2026. However, investors who bought DigitalOcean (NYSE:DOCN) stock at the start of this year would be sitting on a gain of 65% instead (as of the market close on Nov. 10).

DigitalOcean is a provider of artificial intelligence (AI) cloud services, which businesses use to develop and deploy chatbots, agents, and other applications. The company's revenue growth is accelerating thanks to soaring demand for its AI Native Cloud platform, and management expects the momentum to continue in 2027.

Following a recent correction, DigitalOcean stock is now trading at a relatively attractive valuation, which could set the stage for another blistering return next year. Here's why I think it will crush the S&P 500.

Image source: Getty Images.

DigitalOcean's AI solutions are attracting explosive demand

DigitalOcean has always offered a basic set of cloud services with affordable prices, highly personalized support, and a simple dashboard for easy deployment, even for customers without in-house technical staff. Small and mid-sized businesses (SMBs) found those attributes particularly attractive, and DigitalOcean is now applying the same blueprint to its growing suite of AI services.

Most businesses don't have billions of dollars to build AI data centers, or the technical expertise to create a comprehensive AI model from scratch. Renting those tools from a third-party provider can be far more cost-effective, and DigitalOcean's AI Native Cloud platform is the ultimate all-in-one solution.

The AI Native Cloud has multiple layers, and at the foundation is infrastructure. DigitalOcean operates 20 data centers filled with AI chips from top suppliers like Nvidia and Advanced Micro Devices, which provide the computing capacity needed to run powerful AI models. Then there is the inference engine, which includes a library of ready-made models from developers like OpenAI and Anthropic. Businesses can use them to power their chatbots, agents, and other applications.

DigitalOcean said token volume grew tenfold during the third quarter of 2026 (ended Sept. 30), compared to the second quarter just three months earlier. In other words, businesses are rapidly scaling up their AI usage through the AI Native Cloud platform.

As of Sept. 30, DigitalOcean had $800 million in remaining performance obligations (RPO), a whopping 1,200% increase from the year-ago period. RPO effectively represents the backlog of customers who are waiting for more data center capacity to come online, so it can be a good predictor of future revenue.

Accelerating revenue growth, driven by AI customers

DigitalOcean delivered a record $321 million in revenue during the third quarter, up 40% from the year-ago period. It was the fifth consecutive quarter in which that growth rate accelerated, highlighting the company's incredible momentum.

Its annual run-rate revenue (ARR) also grew by 40% to $1.285 billion during the quarter. AI customers accounted for $376 million of that total, which grew by an eye-popping 288%.

DigitalOcean's recent operating results have been so strong that management is now forecasting revenue growth of over 60% in 2027. That forecast stood at 50% just a few months ago, so the AI story continues to rapidly evolve.

DigitalOcean stock could beat the S&P 500 again in 2027

DigitalOcean stock peaked at $181.29 in June, so it has since lost more than half its value. Yet, as I mentioned at the top, it's still sitting on a 65% gain this year.

However, the recent decline has pulled its valuation down to a more reasonable level. Its price-to-sales (P/S) ratio is now 8.3, which is actually below its average of 8.7 since going public in 2021. Moreover, if we assume DigitalOcean grows its revenue by 60% next year, then its forward P/S ratio is just 4.7.

DOCN PS Ratio data by YCharts

Therefore, DigitalOcean stock would have to soar by 75% before the end of next year just to maintain its current P/S ratio of 8.3. It could deliver an even bigger return if management continues to revise its revenue forecasts upward.

Considering the S&P 500 has averaged an annual return of 10.7% since it was established in 1957, I think there is a very high chance that DigitalOcean stock crushes the index yet again in 2027.

Anthony Di Pizio 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.