DigitalOcean’s 2027 Guidance Delays and Capacity Impact Discrepancies Cloud Growth Certainty

Date of Call: Aug 4, 2026

Financials Results

• Revenue: $281 million, up approximately 29% year-over-year
• EPS: $0.45 per diluted share (non-GAAP)
• Operating Margin: 24% adjusted operating income margin

Guidance:

• Q3 2026 revenue expected to be $304 to $307 million, representing 32% to 34% YOY growth.
• Q3 adjusted EBITDA margin expected to be 38% to 39%; non-GAAP diluted EPS expected $0.28 to $0.30.
• Full year 2026 revenue expected $1.17 to $1.18 billion, representing approximately 30.5% YOY growth, with exit growth rate of 35% or more in Q4.
• Full year 2026 adjusted EBITDA margin expected approximately 39%; non-GAAP diluted EPS expected $1.35 to $1.40; adjusted free cash flow margin expected 11% to 13%.
• For 2027, confidence remains in the prior estimate of 50% plus revenue growth for the full year.

Business Commentary:

Revenue Growth and AI Integration:

• DigitalOcean reported record Q2 revenue of $281 million, up 29% year-over-year, more than double the growth rate from the same period last year.
• The growth was driven by strong demand for AI-native cloud services, particularly the inference engine, which grew almost 800% year-over-year, and increased adoption of AI customer ARR, which reached $234 million, growing over 200% year-over-year.

Inference Services and Open-Weight Models:

• The company's inference services, specifically the inference engine, saw over 6,000 customers and 30x increase in token volume over the last 60 days.
• The surge in adoption is attributed to the increasing traction of open-weight models, which rose from 15% to 75% of total token volume, driven by AI-native companies seeking cost-effective and efficient AI solutions.

Capacity Expansion and Operational Discipline:

• DigitalOcean delivered record incremental ARR of $93 million in Q2, the most in the company's history, nearly tripling the same quarter last year.
• This growth was supported by disciplined execution, with new data centers launched ahead of schedule and an additional 20 megawatts of capacity secured, targeting online activation by late 2027 and into 2028.

Financial Performance and Strategic Investments:

• The company achieved strong profitability with 40% adjusted EBITDA margin, 24% adjusted operating income margin, and 17% trailing 12-month adjusted free cash flow margin.
• Strategic investments included retiring $472 million of convertible debt, reducing leverage, and strengthening the balance sheet to support future growth and capacity expansion.

Sentiment Analysis:

Overall Tone: Positive

• Management described Q2 as 'exceptional' and 'outstanding', with 'record' incremental ARR and growth 'more than double' the prior year. They noted 'accelerating growth', 'strong profitability', and 'tremendous traction' with new products. Guidance was raised for 2026, and confidence was expressed for 2027 growth.

Q&A:

• Question from Gabriela Borgeff (Goldman Sachs): Concerns about scaling ability and operational processes for larger customers and megawatts.
  Response: Confident in scaling due to track record; focus is on platform innovation and forward-deployed engineering. Infrastructure is managed on time with top data center operators and partners.

• Question from Jason Ader (William Blair): Impact of pricing on Q2 revenue growth and updated outlook, and expected net leverage and free cash flow for 2026.
  Response: Pricing increases are already baked into guidance and contributed to the higher exit growth rate. Net leverage is projected to be comfortably below 4x; free cash flow will be positive for 2026.

• Question from Mark Zhang (Citi): Details on nine-figure deals and adoption of the five-layer stack, and early plans for go-to-market with new CRO.
  Response: Over 70% of new AI customers use core cloud; focus is on landing high-quality AI-native workloads via ecosystem and enterprise sales with forward-deployed engineering, not immediate scaling.

• Question from Wamsi Mohan (Bank of America): Whether there is further upside to 2027 guidance given strong performance, and details on open weight model usage and cloud core services.
  Response: Indications are positive for 2027 upside, but specific guidance is premature. Open weight models now ~75% of token volume; production workloads are prevalent, and core cloud attach is strong.

• Question from Sanjit Singh (Morgan Stanley): Expectations for revenue per megawatt over time given AI mix and inference engine success.
  Response: Incremental ARR per megawatt is expected to increase due to higher attach rates, mix of services beyond GPU, and more capable hardware.

• Question from Tom Blakey (Kantor): Pricing impact on ARR and megawatt cadence for 2026.
  Response: Pricing impact on Q2 net new ARR was very modest. Capacity is on track, with 15 megawatts remaining from the second half 2026 launch.

• Question from Jackson Ader (KeyBank): Whether incremental deals and capacity signed in Q2 are already factored into 2027 outlook.
  Response: The outlook is conservative; incremental capacity and deals would represent upside, but it's too early to precisely quantify 2027 impact.

• Question from Reddy Soltan (UBS): Mix of NVIDIA and AMD GPUs and unit economics per megawatt.
  Response: The company uses a healthy mix of accelerators but does not disclose hardware-specific unit economics; software optimization makes the platform hardware-agnostic.

Contradiction Point 1

Timeline for Providing 2027 Financial Guidance

Contradiction on when it is appropriate to issue specific forward-looking guidance.

Wamsi Mohan (Bank of America) - Wamsi Mohan (Bank of America)

2026Q2: Management is bullish on 2027, with clear upside potential... However, it is premature to provide specific guidance due to data center implementation timing. - [Matt Steinforth](CFO) and [Patty Srinivasan](CEO)

Should 2027 guidance exceed the prior 50%+ estimate given strong performance? - Wamsi Mohan (Bank of America)

2026Q2: It is premature to give formal 2027 guidance, but the momentum... positions the company for additional upside. - [Matt Steinforth](CFO)

Contradiction Point 2

Impact of Incremental Capacity on 2027 Outlook

Contradiction on how new capacity signed late in 2026 affects the 2027 revenue forecast.

Jackson Ader (KeyBank) - Jackson Ader (KeyBank)

2026Q2: Additional capacity signed late in 2026 would have a larger impact on the exit growth rate of 2027 rather than the full calendar year revenue... - [Matt Steinforth](CFO)

Is the 2027 outlook based only on the 155 MW of committed capacity, or does it include additional 2026 deals and capacity? - Jackson Ader (KeyBank)

2026Q2: By late 2026, new capacity signings would impact the exit growth rate but have a smaller effect on full-year 2027 revenue... - [Matt Steinforth](CFO)

Contradiction Point 3

Timeline for New Data Center Capacity (Kansas City)

Contradiction on when the 15 MW from the Kansas City data center will be operational.

Tom Blakey (Kantor) - Tom Blakey (Kantor)

2026Q2: The 15 MW from the Kansas City data center is on track to come online in the second half of 2026 as planned. - [Matt Steinforth](CFO) and [Patty Srinivasan](CEO)

What was the pricing impact on Q2 ARR and the megawatt cadence for the remainder of 2026? - William Kingsley Crane (Canaccord Genuity)

2026Q1: The Richmond data center came online ahead of schedule. - [Patty Srinivasan](CEO)

Contradiction Point 4

Sufficiency of Committed Capacity for 2027 Growth

Contradiction on whether existing capacity alone can support the 2027 growth target.

Wamsi Mohan (Bank of America) - Wamsi Mohan (Bank of America)

2026Q2: Management is bullish on 2027, with clear upside potential... However, it is premature to provide specific guidance due to data center implementation timing. - [Matt Steinforth](CFO) and [Patty Srinivasan](CEO)

Considering strong performance, should 2027 guidance exceed the previous 50%+ estimate? - Josh Baer (Morgan Stanley)

20260224-2025 Q4: The **31 megawatts of new committed capacity** is sufficient to drive the projected growth... provides confidence in exiting 2026 with **25%+ growth** and reaching **30% growth in 2027**. - [Matt Steinfort](CFO)

Contradiction Point 5

Impact of Pricing on Revenue and ARR

Contradiction on the primary driver of strong performance: pricing impact versus customer demand.

Jason Ader (William Blair) - Jason Ader (William Blair)

2026Q2: A ~30% list price increase... contributed to the strong performance and supports the raised exit growth rate. - [Matt Steinforth](CFO)

How did pricing affect Q2 revenue and the updated outlook? - Thomas Blakey (Cantor Fitzgerald)

20260224-2025 Q4: Pricing is holding or increasing in a market with **scarce supply**... At higher stack layers, DigitalOcean has more **flexibility in pricing per token**. - [Padmanabhan Srinivasan](CEO) and [Matt Steinfort](CFO)