DigitalOcean Holdings' P/E Ratio and Valuation Potential: A Compelling Entry Point for Long-Term Investors?

DigitalOcean Holdings (DOCN) has long been a favorite among cloud infrastructure investors, but its valuation has undergone a dramatic shift in recent years. As of December 2025, the stock trades at a price-to-earnings (P/E) ratio of approximately 19.34 according to public data, a sharp decline from its historical average of 64.73 over the past two years as reported by fullratio. This raises a critical question for long-term investors: Is DOCN's current valuation a reflection of diminished growth expectations, or does it present an undervalued opportunity in a high-growth sector?

A P/E Ratio in Sharp Decline

The P/E ratio for DOCN has plummeted by over 70% compared to its historical average, a trend that has persisted even as the company's earnings have shown resilience. For instance, in Q3 2025, DigitalOcean reported earnings per share of $0.54, exceeding estimates by 28.57%, while revenue grew 15.9% year-over-year to $229.63 million. The company's full-year 2025 guidance of $896–$897 million and adjusted EBITDA margins of 37–40% further underscore its operational strength. Yet, despite these positive fundamentals, the stock's P/E ratio remains significantly lower than its historical norms.

This disconnect suggests that the market may be discounting future growth potential. For example, DOCN's P/E of 19.34 is far below the IT Services sector average of 78.51 according to fullratio data and lags behind peers like Microsoft (39.61 P/E according to marketbeat) and Amazon (37.91 P/E according to marketbeat). Even Alphabet's 20.60 P/E according to marketbeat appears more attractive by comparison. Such a valuation gap implies that investors are either skeptical about DOCN's ability to sustain its growth trajectory or are pricing in macroeconomic risks, such as tighter monetary policy or a slowdown in cloud demand.

Earnings Growth vs. Valuation

DigitalOcean's recent performance, however, challenges the notion that its growth has stalled. The company's Q4 2025 revenue guidance of $237–$238 million as reported and its Q2 2025 EPS of $0.59 (47.5% above estimates according to public data) demonstrate consistent execution. Moreover, its adjusted EBITDA margins are projected to reach 38.5–39.5% in Q4 2025 according to marketchameleon, signaling improved profitability. These metrics suggest that DOCN's earnings power remains robust, even as its P/E ratio has contracted.

The key question is whether the market is underestimating the company's long-term potential. For context, DOCN's P/E of 19.34 is still higher than its 12-month average of 31.04 according to public data, indicating a valuation that appears undervalued relative to its recent performance. Additionally, the stock's P/E is significantly lower than the estimated fair P/E of 16.7x according to simplywall, suggesting that even conservative growth assumptions could justify a re-rating.

Industry Comparisons and Sector Dynamics

DigitalOcean's valuation also appears attractive when compared to its direct competitors. Cloudflare (NET), for instance, trades at a negative P/E of -866.26 according to marketbeat, reflecting ongoing losses and operational challenges. Meanwhile, Microsoft and Amazon, while more diversified, command higher multiples due to their dominant market positions and recurring revenue models. DOCN's P/E of 19.34 sits between Alphabet's 20.60 and Microsoft's 39.61, positioning it as a mid-tier player in a sector where growth is still highly valued.

However, DOCN's lower P/E may also reflect its niche focus on developer-friendly cloud services, which, while profitable, lacks the broad enterprise appeal of Microsoft's Azure or Amazon's AWS. This specialization could limit its scalability compared to its peers, but it also insulates DOCN from some of the pricing pressures faced by larger cloud providers.

Is DOCN a Buy for Long-Term Investors?

The data suggests a nuanced picture. On one hand, DOCN's earnings growth and profitability metrics justify a P/E higher than its current valuation. On the other, the stock's sharp decline from its historical average of 64.73 according to fullratio indicates that the market is pricing in a significant slowdown in growth. For long-term investors, the key consideration is whether this pessimism is warranted.

DigitalOcean's Q3 2025 results and full-year guidance as reported demonstrate that the company can deliver consistent revenue and margin expansion. If it can maintain its 15–20% revenue growth rate and continue improving EBITDA margins, its current P/E of 19.34 could appear undervalued in a few years. Conversely, if competition from Microsoft, Amazon, or newer cloud entrants erodes DOCN's market share, the stock may remain under pressure.

Conclusion

DigitalOcean's valuation presents a compelling case for long-term investors who believe in the company's ability to sustain its growth trajectory. While the P/E ratio of 19.34 is significantly lower than historical averages and sector peers, it is supported by strong earnings performance and conservative guidance. For investors willing to bet on DOCN's execution and the continued demand for cloud infrastructure, the current valuation offers a potentially attractive entry point-provided the company can navigate competitive pressures and macroeconomic headwinds.