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DigitalOcean: DigitalOcean's Strong Q4 Earnings: A Durable Growth Engine

DigitalOcean reported a robust Q4 with 18% revenue growth, reaching $201 million, and $901 million for the full year. The company's adjusted EBITDA margins stood at 42%, and adjusted free cash flow margins at 19%. Earnings per share (EPS) came in at $0.2436, below estimates of $0.38. The company's ARR reached $133 million, growing 123% year-over-year, driven by its 1 million customers. AI customer ARR stood at $120 million, a 150% year-over-year growth, making up 12% of total ARR.

DOCN

USD 62.74

5.91%

A-Score: 5.2/10

Publication date: February 24, 2026

Full Report

Author: Analystock.ai

📋 Highlights
  • Revenue & Growth: Q4 revenue growth of 18% ($901M annualized), with 21% full-year 2026 growth expected, rising to 30% in 2027.
  • AI Customer Performance: AI ARR reached $120M (+150% YoY), 12% of total ARR, with 70% from inference services, not just GPU rentals.
  • Profitability & Margins: 42% adjusted EBITDA margins and 19% adjusted free cash flow margins in 2025, with 36–38% EBITDA margins projected for 2026.
  • Capacity & Infrastructure: 31 megawatts of new capacity to launch by 2026, enabling 25%+ exit growth in 2026 and 30% in 2027, supported by NVIDIA/AMD GPU fleet and open-source model optimization.
  • Customer Base Shift: 1M+ customers grew ARR at 123% YoY, with 50% of $1M+ low-churn customers now AI-focused, reflecting maturation beyond entry-level users.

Growth Prospects

The company expects to deliver 21% revenue growth in 2026, reaching 25% plus growth by Q4 2026, and 30% growth in 2027. This growth is driven by its focus on AI native companies, with traction from leading AI native companies like character.ai, workato, and Hippocratic AI. As Padmanabhan Srinivasan mentioned, "We're on the right side of software disruption, driven by AI, with cloud and AI native companies choosing us as their natural platform to build and scale their software."

Valuation

DigitalOcean's valuation metrics indicate a relatively high price-to-sales ratio of 6.37, and an EV/EBITDA ratio of 14.83. The company's P/E Ratio stands at 22.14, suggesting that the market has priced in a certain level of growth. With a return on equity (ROE) of -214.15%, the company's profitability is a concern. However, the company's net debt to EBITDA ratio is 1.14, indicating a manageable debt burden.

AI Customer Revenue Growth

The company is introducing a new metric, AI customer revenue, which includes revenue from customers using its AI products. In Q4 2025, AI customer ARR reached $120 million, growing 150% year-over-year. This growth is driven by the company's ability to support production-scale inferencing, with 70% of this revenue coming from inference services or general-purpose cloud products.

Capacity Expansion

The company is expanding its capacity, with 31 megawatts coming online by the end of 2026. This expansion is expected to drive revenue growth, with Matt Steinfort explaining that the capacity additions will provide a significant boost to revenue growth. The company's focus on unit economics and responsible capacity expansion is expected to drive long-term growth.

DigitalOcean's A-Score