DigitalOcean Q2 2026 earnings: AI customers drive 29% revenue growth

DigitalOcean (NYSE: DOCN) reported Q2 2026 revenue of $281 million, up 29% year over year, while GAAP diluted EPS was $0.29 for the quarter ended June 30. AI customer ARR increased 212% to $234 million and remaining performance obligations reached $894 million, although GAAP operating income declined and cash flow margins narrowed. DigitalOcean also raised its full-year revenue outlook.

Core earnings data

Revenue growth did not translate into higher GAAP operating profit. Operating income fell 18% to $29 million and net income attributable to common stockholders declined 4% to $35 million, while adjusted operating income rose 9% to $67 million and adjusted EBITDA increased 27% to $114 million.

Cash generation improved in absolute dollars but trailed revenue growth. Operating cash flow rose approximately 20%, while adjusted free cash flow increased about 7%; their respective margins declined by three and four percentage points.

The supplied release does not quantify the individual items reconciling GAAP and adjusted earnings, so the exact sources of the divergence cannot be isolated. DigitalOcean’s adjusted measures generally exclude items such as stock-based compensation, acquired-intangible amortization, acquisition costs and certain restructuring charges.

AI customers and larger accounts drove growth

Annual run-rate revenue, or ARR, reached $1.125 billion, up 29%. DigitalOcean added a record $93 million of incremental ARR during the quarter, an increase of 191% from a year earlier.

AI customer ARR rose 212% to $234 million. This metric is broader than direct revenue from AI products: DigitalOcean includes all infrastructure and platform revenue from customers that use at least one of its AI or machine-learning offerings.

Growth was increasingly concentrated among larger customers:

• The number of customers spending at an annualized rate above $100,000 increased 9%, while revenue from the group rose 98% and represented 35% of total revenue.
• The number of $500,000-plus customers grew 35%, and their revenue increased 160% to 26% of total revenue.
• The number of $1 million-plus customers rose 73%. Revenue from that group grew 214% and represented 23% of total revenue, equivalent to $259 million of ARR.

These customer categories overlap, so their revenue shares should not be added together. The gap between customer-count growth and revenue growth indicates that spending per large account was an important part of the quarter’s acceleration.

Profitability, cash flow and the balance sheet

Adjusted EBITDA held at a 40% margin, but GAAP operating margin was 10% and operating income declined despite the 29% revenue increase. The difference makes the composition of non-GAAP adjustments an important consideration when assessing underlying profitability.

Operating cash flow and adjusted free cash flow remained positive, but neither kept pace with revenue growth. Adjusted free cash flow margin fell to 22% from 26%, while the company’s full-year guidance calls for an 11% to 13% margin. DigitalOcean also notes that its adjusted free cash flow measure excludes equipment acquired through financing arrangements, finance leases and future contractual commitments.

Cash and cash equivalents were $767 million on June 30, up from $254.5 million at the end of 2025. Over the same six-month period, current and long-term debt declined by approximately $375 million to $921 million, but finance lease liabilities and equipment financing obligations increased from about $131 million to $578 million. Net property and equipment rose from $589 million to $1.049 billion, reflecting a substantially larger infrastructure asset base.

DigitalOcean separately disclosed the repurchase of approximately $472 million of its 0% convertible senior notes due in 2030. The transaction was financed through a concurrent registered direct offering, which the company said limited cash usage and dilution.

Longer contracts improve visibility but increase the importance of capacity execution

Remaining performance obligations, or contracted services not yet recognized as revenue, rose from $71 million to $894 million. DigitalOcean expects to recognize $366 million of that amount during the next 12 months. The company also signed its first nine-figure annual customer commitments, extending its weighted average contract life from 1.6 years to more than three years.

These commitments provide more visibility, but they do not guarantee the same pace of revenue growth. DigitalOcean cautions that RPO depends on consumption timing, contract renewals and customers moving from usage-based arrangements to committed contracts. Prior-period RPO figures were recast under the company’s current definition.

Serving larger commitments will also depend on infrastructure delivery. DigitalOcean secured another 20 megawatts of data-center capacity expected to come online in 2027 and 2028, bringing total committed capacity to approximately 155 megawatts. The timing of that capacity makes execution and financing important as AI workloads expand.

Earnings guidance

DigitalOcean initiated Q3 guidance and raised its full-year revenue outlook, although the prior annual revenue range was not included in the supplied release. The latest forecast implies 30% to 31% revenue growth for 2026.

Management commentary

CEO Paddy Srinivasan attributed the acceleration to DigitalOcean’s highest-spending customers and sophisticated AI-native companies. He said early Inference Engine customers increased their total token consumption by approximately 30 times over the previous 60 days. In addition, 85% of AI customer ARR came from inference and core cloud services rather than bare-metal infrastructure.

Beyond the formal guidance, management expects revenue growth to reach at least 35% by Q4 2026 and expressed confidence in exceeding 50% growth in 2027. Those longer-term targets depend on continued AI adoption, customer usage and timely delivery of additional capacity.

Risks investors should watch

• GAAP profitability is lagging revenue: Operating income declined 18% even as revenue rose 29%, while adjusted measures moved in the opposite direction.
• Cash conversion margins are narrowing: Operating cash flow margin fell to 39% and adjusted free cash flow margin declined to 22%, with the full-year free cash flow margin outlook below the Q2 level.
• RPO may not convert evenly into revenue: Recognition depends on actual customer consumption, renewal timing and the structure of committed contracts.
• Growth increasingly depends on large AI customers: The fastest expansion came from high-spending and AI-native accounts, making their usage patterns more important to companywide results.
• Capacity expansion requires execution and financing: Additional data-center capacity will not arrive until 2027 and 2028, while equipment financing and lease obligations have already increased substantially.

Summary

DigitalOcean’s Q2 2026 results showed faster revenue and ARR growth driven by AI customers and larger accounts, supported by longer contracts and a sharply higher RPO balance. At the same time, declining GAAP operating income and lower cash flow margins show that growth is not flowing evenly through every profitability measure. The key issues ahead are whether committed AI demand converts into sustained usage, whether new infrastructure arrives on schedule and whether DigitalOcean can meet its raised revenue outlook while maintaining cash generation.