DigitalOcean Sees 75% Drop in Stock Price Amid AI Growth Story

DigitalOcean, a cloud computing service provider catering to small and mid-size businesses, reported record revenue and soaring profits in Q2 2025. AI revenue surged over 100%, with the number of AI agents created using the GradientAI platform doubling to over 14,000. The company increased its 2025 full-year revenue forecast to $890 million. Despite being 75% below its all-time high, the stock remains a buy according to Wall Street analysts.

DigitalOcean, a leading cloud computing service provider for small and mid-size businesses (SMBs), reported strong financial performance during the second quarter of 2025. The company's revenue for the period reached a record $218.7 million, up 14% year over year, and exceeded management's forecast of $216.5 million [2]. Notably, AI revenue surged by over 100%, highlighting the company's growing focus on artificial intelligence (AI) services.

DigitalOcean's AI services platform, GradientAI, has seen rapid adoption. The number of AI agents created using GradientAI doubled to over 14,000 between the first and second quarters of 2025 [2]. This growth reflects the increasing demand for AI solutions among SMBs, which are leveraging DigitalOcean's platform to deploy AI software and automate various tasks.

The company's financial success has been accompanied by an increase in its full-year revenue forecast for 2025. DigitalOcean has revised its forecast upward to $890 million from $880 million [2]. This growth is driven by strong revenue performance and careful cost management, with operating expenses increasing by just 3.8% year over year [2].

Despite the stock's current valuation being 75% below its all-time high, Wall Street analysts remain bullish on DigitalOcean. Seven out of 13 analysts tracked by The Wall Street Journal have assigned a buy rating to the stock, with an average price target of $41.60, implying a potential upside of 34% over the next 12 to 18 months [2]. The stock trades at a price-to-sales ratio (P/S) of 3.7 and a price-to-earnings ratio (P/E) of 23.7, making it cheaper than the S&P 500 index [2].

In addition to its financial achievements, DigitalOcean has also secured $625 million in convertible senior notes due 2030, which will be used to retire its 2026 convertible notes and reduce debt [3]. This funding round, along with the company's cash on hand and term loans, provides DigitalOcean with a strong balance sheet and flexibility to pursue its growth strategy.

References:
[1] https://www.marketscreener.com/news/introducing-langchain-gradient-seamless-langchain-integration-with-digitalocean-gradienta-ai-plat-ce7c51dddc8cfe23
[2] https://finance.yahoo.com/news/1-glorious-growth-stock-down-080900052.html
[3] https://www.marketscreener.com/news/digitalocean-announces-closing-of-625-million-convertible-senior-notes-offering-including-full-exe-ce7c51dcd98af621