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The Top Cloud Stock I'm Buying Right Now

By Taylor Carmichael – Nov 4, 2021 at 7:00AM

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Start-up software companies love using DigitalOcean as a simple and easy cloud platform. Its passionate user base reminds a lot of people of the early days of Shopify.

DigitalOcean (DOCN 2.05%) is a cloud-provider that is competing with internet giants like Amazon (AMZN -0.18%)Microsoft (MSFT 4.20%), and Alphabet (GOOG 4.42%). Those internet titans are focused on very large clients. DigitalOcean has a much simpler platform designed for all the small-caps and tech start-ups that need a host in the cloud.

In this episode of "The 5," Motley Fool contributor Taylor Carmichael talks with fellow contributor Jason Hall about why he's buying shares of this stock. This segment was recorded live on Oct 21.

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Jason Hall: Taylor, I'm going ask you to kick this off. What's a stock you recently bought, an individual stock, Fed officials, that you [laughs] recently bought that you're really excited about. Taylor?

Taylor Carmichael: DigitalOcean. I dropped a couple of really cool articles in Slido. I don't know if they're in there yet. DigitalOcean is an amazing company, and it's another one that has a potential to be another Shopify (SHOP -0.43%), so another just terrific long-term stock. It's a little bit scary because they are competing with Amazon, they're competing with Microsoft, and they are competing with Google; the big three of the cloud. That's interesting. Because of course, Shopify competed with Amazon too indirectly, by competing with the retail side, by arming all the retailers who are competing with Amazon. Well DigitalOcean is doing that for the cloud. They have a very simple service. It's incredibly simple. Whereas the big three, everything is complicated. They're dealing with very large customers, they're dealing with enterprise clients, they're dealing with large caps. It's so complicated to get on AWS, there's a whole business that's been created to help people deal with the problems of getting on AWS. It's a real headache for anybody who's tiny, anybody who's small. The small business market is vast, it's huge. Just like Shopify, again, so very exciting that DigitalOcean is doing this very basic simple get on the Cloud, solve the problems it's not complicated, and it's just very exciting. Tom Gardner mentioned it during our Fool call. As somebody asked him, "Tom, what's your favorite stock? What do you like?" He mentioned it, might have been the first time I heard about it, and I started researching it and I fell in love with it. It's really interesting, really fascinating. I can give you a little tidbit from one of those articles. There was an interview with one of the guys who is a founder and I think it he was the chief operating officer or the chief technical officer. This is pre-IPO early days where they were talking about dropping their monthly rate from $10 a month to $5 a month. It was scary because the founder was like, if we don't double our customers we could go out of business because we're cutting our margins in half by dropping our rate from $10 to $5. They were scared, but they did it. They dropped it to five, and instead of doubling their customers, their customers went up a 100-fold. That was a very early story from the garage days when they're getting started. But DigitalOcean is this company that provides Cloud services, competing with the big three, they're doing it to very small companies and I'm very excited about the growth potential. One more little thing. Right now they're growing, their top line about 35 percent, but they haven't been spending any money on advertising, or marketing, or anything. It's all word-of-mouth really. Now that they've come public, they came public earlier this year, they're going to start spending some money on marketing and to really get their name out there. That's their number 1 goal is to increase their revenue rate actually. Right now they're top-line growth is just 35 percent, but I'm expecting to go a lot higher. It's pretty exciting early days. It's about 10 billion market cap, it's little on the big side for me, I like smaller, but I think it's a massive upside.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Taylor Carmichael owns shares of Amazon, Digitalocean Holdings, Inc., and Shopify. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Digitalocean Holdings, Inc., Microsoft, and Shopify. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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