DigitalOcean Stock Could Surge 32% Amid Growing Cloud Computing Demand

DigitalOcean, a cloud computing service provider for SMBs, has seen its stock price drop 76% from its peak. Despite this, Wall Street analysts believe the stock could rebound with a consensus price target of $41.60, implying a 32% gain. The company's user-friendly interface, low costs, and new AI features have driven 14% YoY sales growth in Q2, with total revenue still only 1% of Amazon Web Services' annualized sales. DigitalOcean generates a healthy profit, with free cash flow at 26% of revenue in Q2, and has returned profits to shareholders through share buybacks.

DigitalOcean (NYSE: DOCN), a cloud computing service provider for small and mid-sized businesses (SMBs), has seen its stock price drop by 76% from its peak. Despite this significant decline, Wall Street analysts remain bullish on the company's prospects, with a consensus price target of $41.60, implying a potential 32% gain [1].

The company's user-friendly interface, low costs, and new AI features have driven a 14% year-over-year (YoY) sales growth in the second quarter (Q2) of 2025. Total revenue for the quarter reached $218.7 million, up 14% from the year-ago period. Although this figure is still only 1% of Amazon Web Services' annualized sales, DigitalOcean's growth trajectory is notable [1].

DigitalOcean's AI revenue doubled year over year during the second quarter, leading management to increase its full-year revenue forecast. The company's net income surged by 93% to $37 million on the basis of generally accepted accounting principles (GAAP), driven by strong revenue growth and careful cost management [1].

The company's stock trades at a price-to-sales ratio (P/S) of 3.7, which is near the cheapest level since it went public. Considering its earnings have more than doubled during the first two quarters of 2025, DigitalOcean's stock appears to be undervalued [1].

Wall Street's bullish consensus is backed by the company's strong growth at the top and bottom lines, as well as its attractive valuation. Seven out of 13 analysts tracked by The Wall Street Journal rate DigitalOcean a buy, with none recommending selling [1].

Despite the bullish outlook, investors should consider the potential risks associated with the company. The Motley Fool Stock Advisor team did not include DigitalOcean in its list of the top 10 stocks to buy right now, suggesting that investors should carefully evaluate the company's prospects [2].

References:

[1] The Globe and Mail. (2025). Glorious growth stock down 75% to buy hand over fist, according to Wall Street. Retrieved from https://www.theglobeandmail.com/investing/markets/stocks/DOCN/pressreleases/34322990/1-glorious-growth-stock-down-75-to-buy-hand-over-fist-according-to-wall-street/

[2] The Motley Fool. (2025). Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Retrieved from https://www.fool.com/investing/stocks/