Snowflake (SNOW +4.68%) has evolved from being a data warehouse to a prominent artificial intelligence (AI)-powered data infrastructure company.
The company delivered impressive performance in the second quarter of fiscal 2026 (ended July 31). Revenue jumped 32% year over year to $1.1 billion. While not yet profitable, the company had $6.9 billion in remaining performance obligations (RPO) at the end of the quarter. This implies strong revenue visibility for the future years.
The company also reported net revenue retention of 125%. With the company focused on integrating AI across the entire data life cycle through innovations like Snowflake Intelligence and Cortex AI SQL, it is fast emerging as a critical player in the global AI-powered data infrastructure landscape.
Image source: Getty Images.
But now, a much smaller company, DigitalOcean Holdings (DOCN +2.05%), seems to be applying a similar strategy to the even larger AI infrastructure market. DigitalOcean is focused on giving developers and start-ups affordable access to cloud and GPU computation capacity for running inference (real-time deployment of AI models) workloads.
Trading around $41 per share with a market capitalization close to $3.8 billion, DigitalOcean can see a growth trajectory similar to Snowflake's in the next decade. Here's why.
AI-powered cloud capabilities
DigitalOcean is gradually evolving from being a general purpose cloud computing provider to an AI-powered cloud provider focused on developers, start-ups, and digital-native businesses. The company's transparent pricing and self-service platform remain solid competitive strengths, especially since many digital-native start-ups may find large cloud service platforms such as Amazon's AWS, Microsoft's Azure, and Alphabet's Google Cloud expensive or complex.
The company now offers a twin stack of cloud services, which includes general purpose cloud and Gradient AI Agentic cloud. The general purpose cloud provides core services such as compute, storage, networking, databases, and Kubernetes orchestration. These integrated cloud stacks enable clients to run AI inferencing at scale and embed AI capabilities directly into their software, while using cloud services, without handling the underlying AI infrastructure.
The Gradient AI Platform entered general availability in July. It also offers an easy and cost-effective way for customers to build, deploy, and scale production-grade intelligent agents with built-in safety and security provisions. The twin stack architecture is expected to boost usage of DigitalOcean's services, which will translate into higher recurring revenue streams and help create a sticky customer base.
DigitalOcean's strategy closely mirrors that of Snowflake, as it moves from being just a cloud infrastructure provider to an AI-powered cloud player.
NYSE: DOCN
Key Data Points
Improving financial and business momentum
DigitalOcean's new strategy seems to be delivering results. In fiscal 2025's second quarter (ended June 30), the company's revenue rose 14% year over year to $219 million, while net income soared 93% to $37 million. Revenue from its artificial intelligence/machine learning (AI/ML) business grew by over 100%. Adjusted free cash flow totaled $57 million, up 54%.
DigitalOcean is also expanding its base of high-value clients. Revenue from customers with an annual run rate over $100,000 (Scalers+ customers) grew 35% year over year and accounted for almost 24% of the total revenue in Q2. The company is benefiting from several digital-native enterprises migrating from hyperscalers to its platform. The company has built a small, dedicated migration team to support this trend, which facilitated 76 migrations in Q2.
AI inference can also emerge as a significant growth catalyst. DigitalOcean offers preconfigured workload deployment environments based on Nvidia and Advanced Micro Devices' graphics processing units (GPUs). According to the company's collaboration with AMD, its Gradient AI infrastructure will now power AMD's Developer Cloud. This partnership will enable open-source developers to test and run models on AMD's Developer Cloud without initial hardware investment. It also helps accelerate the pace of inference deployments.
Pricing strategy
Similar to Snowflake, DigitalOcean also operates a consumption-based model. This allows developers and start-ups to start using it without heavy investment and lock-in. However, once developers get used to the platform and deploy their workloads, they may find switching costly and disruptive to their operations.
Can DigitalOcean be the Next Snowflake?
Several factors have to work in DigitalOcean's favour for the company's market capitalization to grow dramatically in the next few years.
First, although growing fast, the AI business is still a small part of DigitalOcean's total revenues. Its AI/ML business needs to maintain its current growth rate over the next few years to become a significant revenue driver. Second, DigitalOcean's net dollar retention must also increase significantly from its current 99%. This will highlight its success in cross-selling and upselling, building multiyear high-value customer relationships.
Third, DigitalOcean must continue to strengthen its customer base. Over 14,000 AI agents have already been created on its Gradient platform. Nearly 6,000 customers have used this platform since January 2025, of which 30% were new to DigitalOcean's ecosystem.
Growth trajectory
To reach close to Snowflake's market capitalization of around $81.6 billion, DigitalOcean would have to expand at a compound annual growth rate (CAGR) of nearly 36% for the next decade. This does not seem plausible under normal conditions.
DigitalOcean's shares currently trade at 4.6 times sales, which is relatively cheap for the industry. However, in case AI becomes a major growth engine, the company may witness expansion in the price-to-sales multiple to its historical 5-year average of 5.6 in the next couple of years.
Analysts expect the company's revenue to be around $1.18 billion in fiscal 2027. This may translate into a market capitalization of close to $6.6 billion, which is almost 74% higher than its current market value. Hence, even without overtly optimistic expectations, DigitalOcean can still prove to be a smart pick and deliver impressive returns in the next few years.
