DigitalOcean benefits from AI inference demand amid software market shift
Written by Emily J. Thompson, Senior Investment Analyst
Updated: May 24 2024
0mins
Should l Buy DOCN?
Source: NASDAQ.COM
DigitalOcean Holdings Inc. saw its stock rise by 6.97% as it crossed above the 5-day SMA, reflecting positive momentum in the market.
The company is emerging as a key player in the AI inference space, benefiting from increased demand for its services as investors shift focus towards platforms with clearer short-term demand signals. This shift is occurring amid a broader market rally, particularly in the semiconductor sector, which is drawing attention away from software companies. DigitalOcean's advantages in user proximity and real-time workloads position it favorably in this evolving landscape.
As the market continues to prioritize AI-related infrastructure, DigitalOcean's growth potential appears promising, suggesting that its strategic positioning could lead to further gains in the future.
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Analyst Views on DOCN
Wall Street analysts forecast DOCN stock price to fall over the next 12 months. According to Wall Street analysts, the average 1-year price target for DOCN is 55.90 USD with a low forecast of 47.00 USD and a high forecast of 65.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
12 Analyst Rating
8 Buy
4 Hold
0 Sell
Moderate Buy
Current: 57.660
Low
47.00
Averages
55.90
High
65.00
Current: 57.660
Low
47.00
Averages
55.90
High
65.00
About DOCN
DigitalOcean Holdings, Inc. provides the simplest scalable cloud platform that democratizes cloud and AI for growing tech companies around the world. It provides a cloud computing platform, offering simple, scalable and approachable on-demand infrastructure and platform services for developers at growing technology companies. Its platform simplifies cloud computing, enabling its customers to rapidly accelerate innovation and productivity. The simplicity of its platform allows users to focus on building and scaling their business instead of on managing their infrastructure. It offers mission-critical solutions across Infrastructure-as-a-Service (IaaS), including its Droplet virtual machines, storage and networking offerings; Platform-as-a-Service and Software-as-a-Service, including its Managed Hosting, Managed Database, Managed Kubernetes and Marketplace offerings; and artificial intelligence and machine learning, including its GPU Droplets, Notebooks and GenAI Platform offerings.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
DigitalOcean Shows Strong Growth Potential Amid AI Boom
- Revenue Growth Expectations: DigitalOcean is projected to report nearly $900 million in revenue for 2025, reflecting a 15% year-over-year increase, indicating a solid market position in the rapidly growing AI data center sector, even though its growth rate may not match Nebius, its stability is more appealing.
- High Customer Retention: The company's net dollar retention rate stands at 99%, suggesting that once customers become paying users, they are almost guaranteed to continue using its services, thereby providing a stable revenue stream and long-term customer relationships.
- Strong Profitability: DigitalOcean's EBITDA profit margin is around 40%, demonstrating a good balance between spending and revenue, which instills confidence in investors despite competitive pressures in the AI market, ensuring profitability.
- Clear Market Positioning: DigitalOcean focuses on providing scalable AI solutions for smaller customers, allowing them to test its technology at a low cost of $50 per month, which has attracted 640,000 paying customers, showcasing its competitive advantage in the niche market.
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- Customer Expansion: Analyst Thomas Blakey noted that DigitalOcean continues to scale its business, successfully winning large customers such as Character.ai earlier this year, demonstrating its market competitiveness and appeal.
- Product Innovation: DigitalOcean's GPU-led platform-as-a-service is expected to gain more traction this year, as the product expands, potentially driving further revenue growth and market share.
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- Software Market Shift: The software industry is being treated as a funding source, with investors rotating towards assets with clearer short-term demand, indicating a significant decline in market focus despite software's inherent value.
- Rise of Inference Platforms: Cloudflare and DigitalOcean are emerging as beneficiaries of AI inference, emphasizing their advantages in user proximity, latency, and real-time workloads, indicating that inference demand is enhancing the value of these platforms.
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- Revenue Growth Expectations: DigitalOcean is projected to report nearly $900 million in revenue for 2025, reflecting a 15% year-over-year increase, indicating a solid market position in the rapidly growing AI data center sector, even though its growth rate may not match Nebius, its stability is more appealing.
- High Customer Retention: The company's net dollar retention rate stands at 99%, suggesting that once customers become paying users, they are almost guaranteed to continue using its services, thereby providing a stable revenue stream and long-term customer relationships.
- Strong Profitability: DigitalOcean's EBITDA profit margin is around 40%, demonstrating a good balance between spending and revenue, which instills confidence in investors despite competitive pressures in the AI market, ensuring profitability.
- Clear Market Positioning: DigitalOcean focuses on providing scalable AI solutions for smaller customers, allowing them to test its technology at a low cost of $50 per month, which has attracted 640,000 paying customers, showcasing its competitive advantage in the niche market.
See More
Wall Street Analysts Adjust Ratings
- Analyst Rating Changes: Top Wall Street analysts have adjusted their ratings on several companies, including upgrades, downgrades, and initiations, reflecting varying market perspectives on these stocks.
- Market Focus: Analysts' views on SNAP stock have garnered investor attention, and while specific ratings are not detailed in the report, there remains a divergence in market expectations for its future performance.
- Impact of Rating Changes: The changes in ratings could influence investor decisions, especially in the current market environment where reliance on analyst opinions is heightened, potentially leading to stock price volatility.
- Further Information: For a complete view of all analyst rating changes, including upgrades, downgrades, and initiations, it is recommended to visit Benzinga's analyst ratings page for more comprehensive information and data.
See More
Cantor Fitzgerald Upgrades DigitalOcean Rating to Overweight
- Rating Upgrade: Cantor Fitzgerald has upgraded DigitalOcean's rating from Neutral to Overweight, raising the price target from $47 to $68, reflecting optimism about the company's future revenue growth, which is projected to reach approximately 6 times its 2027 revenue targets.
- Customer Expansion: Analyst Thomas Blakey noted that DigitalOcean continues to scale its business, successfully winning large customers such as Character.ai earlier this year, demonstrating its market competitiveness and appeal.
- Product Innovation: DigitalOcean's GPU-led platform-as-a-service is expected to gain more traction this year, as the product expands, potentially driving further revenue growth and market share.
- Analyst Day Event: Blakey predicts that DigitalOcean will host an Analyst Day in the coming months, which could serve as a catalyst for share price appreciation, further enhancing investor confidence in the company's future prospects.
See More
Latest Wall Street Rating Updates
- Goldman Sachs Reiterates Nvidia: Goldman Sachs maintains a Buy rating on Nvidia ahead of its earnings report, expecting investors to focus on visibility into 2027, non-traditional customer demand, and trends in the Chinese market, indicating strong market confidence in Nvidia's future growth.
- Benchmark Initiates Cava Rating: Benchmark initiates coverage of CAVA Group with a Buy rating and an $80 price target, reflecting its leadership position in the rapidly emerging Mediterranean dining market, which is expected to attract more investor interest in this burgeoning sector.
- BMO Capital Upgrades Brookfield: BMO upgrades Brookfield Asset Management from Market Perform to Outperform, citing attractive mid-teens distributable earnings growth prospects underpinned by continued fundraising momentum and fee rate resilience, showcasing the company's robust financial health.
- Bank of America Downgrades Qualcomm: Bank of America downgrades Qualcomm from Buy to Neutral, lowering the price target from $215 to $155 due to concerns over cyclical and structural weaknesses in the handset market, which may adversely affect its future performance.
See More
Semiconductor Market Rallies as Software Falters
- Semiconductor Market Rally: As visibility around AI capital expenditures strengthens, capital continues to flow into compute, memory, and infrastructure sectors, driving semiconductor stock prices up and reflecting a strong preference for clear near-term demand signals.
- Software Market Shift: The software industry is being treated as a funding source, with investors rotating towards assets with clearer short-term demand, indicating a significant decline in market focus despite software's inherent value.
- Rise of Inference Platforms: Cloudflare and DigitalOcean are emerging as beneficiaries of AI inference, emphasizing their advantages in user proximity, latency, and real-time workloads, indicating that inference demand is enhancing the value of these platforms.
- Strategic Importance of Anthropic: The market increasingly values anything associated with Anthropic, viewing it as the
See More
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- Revenue Surge: Nebius experienced a staggering 462% revenue growth in 2024, followed by another 437% increase in the first nine months of 2025, indicating robust demand for its AI infrastructure services, with analysts projecting a 373% revenue rise for the full year.
- Market Capitalization: With a market cap of $23 billion and a current stock price of $97.99, Nebius is valued at less than seven times this year's sales, reflecting a reasonable valuation that attracts investor interest in the rapidly growing AI market.
- Data Center Expansion Needs: Despite securing major contracts with Microsoft and Meta, Nebius operates only one first-party data center in Finland and relies on leased centers in various countries, necessitating significant spending to expand its data center network, which could lead to substantial losses in 2026 and 2027.
- Competitive Pressure: Nebius faces intense competition from other AI infrastructure providers, and its heavy reliance on Microsoft and Meta may limit its negotiating power in pricing discussions, potentially impacting its profitability in the future.
See More
