CoreWeave (CRWV -2.16%) and DigitalOcean (DOCN 0.17%) both help companies process artificial (AI) tasks with their cloud-based graphics processing units (GPUs). CoreWeave, previously a cryptocurrency mining company, mainly serves larger companies. DigitalOcean splits its servers into "droplets" for smaller businesses and developers. Each should be in a good position to profit from the explosive growth of the AI market.
However, investors are clearly more bullish on CoreWeave, which went public at $40 in March but now trades at around $125. DigitalOcean trades at $29, which is nearly 40% below its initial public offering price of $47 from March 2021. Let's see which is the better cloud AI stock.
Image source: Getty Images.
The differences between CoreWeave and DigitalOcean
CoreWeave was once an Ethereum (CRYPTO: ETH) miner, but it abandoned that business model in 2018 and started using its GPUs to remotely process AI tasks. In 2022, it spent about $100 million to install Nvidia's (NASDAQ: NVDA) H100 GPUs in its data centers, and it used those GPUs as collateral to secure more funding to build additional data centers. It subsequently attracted investments from Nvidia, Cisco, and other tech giants. Today, CoreWeave operates 33 data centers across the U.S. and Europe -- up from just three centers at the end of 2022. Its top customers include Microsoft (NASDAQ: MSFT) and OpenAI.
DigitalOcean's cloud infrastructure platform, which provides remote storage and computing power, is similar to Amazon Web Services and Microsoft Azure. But unlike those leading cloud platforms, which mainly serve large enterprise clients, DigitalOcean carves up its cloud servers into thinner and more affordable slices for smaller businesses. In 2023, it added cloud-based GPUs to its platform via its acquisition of Paperspace. DigitalOcean has been expanding much more slowly than CoreWeave: It currently operates 15 data centers across nine geographic regions, up from 14 centers at the end of 2022.
Which company is growing faster?
From 2022 to 2024, CoreWeave's annual revenue grew at a staggering compound annual growth rate (CAGR) of 990%, from $16 million to $1.9 billion. DigitalOcean's revenue rose at a more modest (but still respectable) CAGR of 16%, from $576 million in 2022 to $781 million in 2024.
CoreWeave grew much faster than DigitalOcean for three reasons. First, it focused only on providing cloud-based GPUs for demanding AI tasks instead of a broader range of storage and computing services. DigitalOcean's acquisition of Paperspace gave it a foothold in the AI market, but its non-AI cloud services aren't growing as rapidly.
Second, CoreWeave locked in huge customers, like Microsoft and OpenAI, that could afford to quickly ramp up their spending on its cloud-based GPU services. DigitalOcean served smaller developers and small-to-medium-size businesses -- which paid less money to deploy their apps and sandboxes.
Third, CoreWeave has taken on lots of debt and racked up steep losses to buy more GPUs and open more data centers. DigitalOcean has been prioritizing its profit growth over its near-term expansion, and its net income has stayed in the black over the past two years.
Which stock has more upside potential?
From 2024 to 2027, analysts expect CoreWeave's revenue to grow at a CAGR of 106% to $16.7 billion as it turns profitable in the final year. They expect DigitalOcean's revenue to increase at a CAGR of 14% to $1.2 billion as its net income rises at a CAGR of 29% to $179 million.
CoreWeave's projected growth trajectory looks incredible, but that expansion will likely be driven by a lot of debt and secondary offerings. Yet with a market cap of $63.5 billion, it doesn't seem that pricey relative to its growth potential at 13 times this year's sales.
DigitalOcean, with a market cap of $2.7 billion, might seem a lot cheaper at 3 times this year's sales. But it's trading at that discount because it's growing at a much slower rate. Its conservative AI strategy also isn't attracting as much attention as CoreWeave's all-in expansion.
So for now, CoreWeave still looks like a better play on the cloud and AI markets than DigitalOcean. Its business strategy is risky and aggressive, but it could generate much bigger long-term returns for its investors than DigitalOcean's less ambitious approach.
