This AI Cloud Stock Is Obliterating Amazon, Microsoft, and Alphabet With a 1-Year Return of 275%. Is It Still a Buy?
DigitalOcean (DOCN) has surged 275% in a year, outperforming tech giants by targeting SMBs with affordable AI cloud solutions. Driven by its 'AI-Native Cloud' platform, Q2 revenue rose 29% to $281.2 million, with AI ARR up 212%. Strong demand is evidenced by an 12-fold increase in remaining performance obligations. Despite a high current P/S ratio of 14.1, the forward P/S of 7.2 suggests potential value for long-term investors.
The cloud computing industry is dominated by Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud, and all three companies are currently spending hundreds of billions of dollars to build highly specialized data centers as they battle for artificial intelligence (AI) supremacy.
But a tiny $14 billion cloud company called DigitalOcean (DOCN +4.50%) is taking the fight to those giants and has captured a valuable slice of the AI market. In fact, its stock has exploded higher by 275% over the last 12 months, obliterating Amazon, Microsoft, and Alphabet, which have returned an average of just 31%. Here's why.
Image source: Getty Images.
Demand is surging for DigitalOcean's AI solutions
Most businesses don't have billions of dollars to build AI data centers, so they rent computing capacity from cloud providers instead and only pay for what they use. While Amazon, Microsoft, and Alphabet are busy chasing the highest-spending customers, DigitalOcean is sticking to what it knows: affordable solutions for small and midsized business (SMB) customers.
DigitalOcean has always offered a basic set of cloud services at low prices and highly personalized technical support, delivered via a simple dashboard for easy deployment. It's applying the same blueprint to its expanding suite of AI services through a new platform called AI-Native Cloud, which features five distinct layers to help businesses deploy AI software.
Infrastructure is the foundation layer, and it includes 20 data centers housing thousands of chips from suppliers such as Nvidia and Advanced Micro Devices. Another layer is the "inference engine," which provides access to foundation models from leading AI developers such as OpenAI and Anthropic, as well as over 70 open-source models. Businesses can use these to power their AI agents, chatbots, and other applications, an affordable alternative to building their own models from scratch.
The inference router, a feature of the inference engine, can analyze prompts and route them to the most suitable model, optimizing for both intelligence and cost. This is an innovative way DigitalOcean is helping its cost-conscious customers save money.
At the conclusion of the second quarter of 2026 (ended June 30), DigitalOcean had $894 million in remaining performance obligations (RPO), up by a staggering 12-fold from the year-ago period. This effectively represents a backlog of customers waiting for more data center capacity to come online, indicating a large pipeline of demand.
NYSE: DOCN
Key Data Points
Accelerating revenue growth
DigitalOcean generated a record $281.2 million in revenue during the second quarter, up 29% from the year-ago period. That was more than double the 14% growth rate the company delivered in the same quarter last year, highlighting its significant AI-driven momentum.
DigitalOcean also ended the quarter with $1.1 billion in annual recurring revenue (ARR). AI customers specifically accounted for $234 million of that total, an eye-popping 212% year-over-year increase.
DigitalOcean's recent results have been so strong that management is already forecasting over 50% total revenue growth for 2027. However, chief financial officer Matt Steinfort says that number doesn't even reflect all of the company's recent progress, so it might come in even higher.
Is DigitalOcean stock still a buy?
DigitalOcean stock isn't cheap right now, which isn't exactly shocking, given its 12-month return of 275%. Its price-to-sales (P/S) ratio is 14.1 as I write this, which is substantially higher than its average of 8.6 since going public in 2021.
However, based on management's 2027 revenue guidance, the stock has a forward P/S ratio of just 7.2 -- and it might be even lower, considering top-line growth could come in even higher than the forecast 50%.
DOCN PS Ratio data by YCharts
Therefore, investors willing to hold DigitalOcean stock for at least the next 18 months might be getting a bargain at the current price. But since the AI-Native Cloud platform only launched in April, the company has barely even scratched the surface of its opportunity.
For that reason, I think investors who adopt a longer-term time horizon of three to five years could reap much bigger rewards than those who only plan to stick around for the next 18 months.
