DigitalOcean's Q2 2025: Navigating Contradictions in AI/ML Growth, Margins, and Revenue Metrics

AI/ML revenue growth and traction, AI/ML revenue contribution to NDR, gross margin expectations and impact of AI, AI/ML vs. core cloud revenue contribution, and net dollar retention rate inclusion of AI/ML revenue are the key contradictions discussed in DigitalOcean's latest 2025Q2 earnings call.



Strong Revenue Growth and AI Contribution:
- DigitalOcean reported revenue of $219 million for Q2 2025, growing 14% year-over-year.
- The growth was driven by excellent strength in AI/ML revenue, which grew over 100% year-over-year, and Scalers+ customers, whose revenue increased 35% year-over-year, accounting for 24% of total revenue.

Product Innovation and Customer Acquisition:
- Over 60 new products and features were released, with 64 of the top 100 customers adopting a new product or feature released within the last year.
- This innovation and enhanced product-led growth strategies led to strong customer acquisition, particularly among digital native enterprises.

Capital Allocation and Balance Sheet Management:
- DigitalOcean achieved adjusted free cash flow of $57 million, which is 26% of revenue, up from the previous quarter.
- The company continues to execute its capital allocation priorities, maintaining material cash and cash equivalents of $388 million and addressing the outstanding 2026 convertible debt.

Expansion into AI and Large Customer Deals:
- The Gradient AI Platform saw a significant uptake, with over 14,000 agents created since its launch, resulting in 30% of customers being new to DigitalOcean.
- The company is securing strategic multiyear deals with digital native enterprises, contributing to a material increase in the remaining performance obligation balance.