Cloud computing platforms give businesses access to the tools they need to thrive in the digital age, from simple data storage to complex software development solutions. But over the last couple of years, cloud providers have also started offering new products and services to help businesses develop and deploy artificial intelligence (AI).
The cloud industry is dominated by trillion-dollar technology giants like Amazon and Microsoft, but another company called DigitalOcean (DOCN 2.14%) -- which is valued at just $5.7 billion -- is making a real splash. It exclusively serves small and mid-sized businesses (SMBs), providing not only cloud services, but an expanding portfolio of AI services, too.
DigitalOcean's AI revenue doubled in each of its last five reported quarters, and on Feb. 24, the company will release its operating results for the fourth quarter of 2025 (ended Dec. 31). Its stock is already up 27% in 2026, and here's why I think the upcoming report will drive even further gains.
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Granting access to AI for even the smallest businesses
The cloud industry's largest providers typically focus on customers with the highest spending potential, leaving SMBs feeling somewhat neglected. DigitalOcean, on the other hand, offers them highly personalized service, clear and transparent pricing, and a simple dashboard that makes deploying cloud services easy. These features are perfect for start-ups and small enterprises with limited financial and technical resources.
DigitalOcean is applying the same strategy to its growing portfolio of AI services, making it affordable for even the smallest businesses to benefit from this revolutionary technology. It operates data centers fitted with advanced chips from suppliers like Nvidia and Advanced Micro Devices, and it allows customers to start with just one chip and scale up as needed. While some larger cloud providers also offer fractional capacity, DigitalOcean claims to be a whopping 75% cheaper.
DigitalOcean also built an AI platform called Gradient, where SMBs can access the latest large language models (LLMs) from third parties like OpenAI, which they can use to accelerate AI software development. Plus, Gradient helps SMBs create and deploy AI agents, which could be a major growth area in the future.
According to DigitalOcean's latest annual "Currents" survey, 53% of SMBs that have deployed AI agents so far experienced tangible time savings, and 44% said using agents unlocked entirely new business capabilities. Over one-third of SMBs that haven't deployed AI agents yet plan to start doing so in 2026, and DigitalOcean will be there to support them on their journey.
Revenue growth is accelerating, thanks to AI
DigitalOcean generated $659 million in total revenue during the first three quarters of 2025 (ended Sept. 30), which was a 14.5% year-over-year increase. It marked an acceleration from the 12.4% growth the company produced in the first three quarters of 2024, and a lot of that momentum came from its budding AI business.
DigitalOcean's AI revenue has doubled year over year in each of the last five reported quarters, and management's guidance suggests it doubled yet again in the fourth quarter. The company hasn't disclosed exactly how much AI revenue it generates, but at these growth rates, it won't be long before it represents a large part of the overall business.
NYSE: DOCN
Key Data Points
DigitalOcean managed to expand its AI product portfolio and achieve accelerated revenue growth while reducing its operating expenses during the first three quarters of 2025, which is extremely impressive. As a result, with more money coming in and less money going out, the company's operating income doubled to $118.2 million for the period.
Despite significant gains, DigitalOcean stock still looks attractive
Even though DigitalOcean stock soared by 41% in 2025 and by a further 27% in the early stages of 2026, it still trades at an attractive price-to-sales (P/S) ratio of 7.2, which is below its average of 8.1 since the company went public in 2021.
Data by YCharts.
Plus, based on DigitalOcean's trailing-12-month generally accepted accounting principles (GAAP) earnings of $2.50 per share over the last four reported quarters, its stock is trading at a price-to-earnings (P/E) ratio of 24.9, making it far cheaper than the Nasdaq-100 technology index, which trades at a P/E ratio of 31.5. In other words, DigitalOcean is attractively valued relative to many of the larger companies in the cloud and AI industries.
This sets the stage for further upside in DigitalOcean stock from here, and the company's upcoming fourth-quarter earnings report on Feb. 24 could be the spark that ignites the rally. If its AI revenue doubles yet again as expected, and management puts forward another round of bullish forward guidance, I think investors will pounce on this stock and drive its valuation much higher.
