DigitalOcean Raises 2026 Outlook as Q3 Revenue Jumps 40%

DigitalOcean (NYSE: DOCN) raised its 2026 outlook and projected revenue growth of at least 60% in 2027 after third-quarter revenue increased 40% year over year, its fastest growth rate in a decade. The cloud infrastructure provider said expanding AI usage helped annual recurring revenue reach $1.29 billion, while profitability and cash generation remained positive as it added data-center capacity.

Revenue rose to $321.2 million in the third quarter from $229.6 million a year earlier. DigitalOcean added a record $160 million of incremental ARR, up 266% year over year, bringing total ARR to $1.285 billion. The company described the period as its fifth consecutive quarter of sequential revenue-growth acceleration.

Adjusted EBITDA increased 45% to $144.2 million, representing a 45% margin. Adjusted operating income was $74 million, or 23% of revenue. On a GAAP basis, DigitalOcean reported a 50% gross margin and a 10% operating margin.

Trailing-12-month adjusted free cash flow rose 24% to $220 million, equivalent to a 20% margin. The presentation noted that adjusted results exclude items including stock-based compensation, amortization of acquired intangible assets and certain acquisition, restructuring and impairment costs.

AI customers drive ARR expansion

AI customer ARR reached $376 million, up 288% from a year earlier and equal to 29% of total company ARR. DigitalOcean defines the metric as annualized revenue from customers using at least one AI-related product or infrastructure offering, including those customers’ spending on the company’s infrastructure-as-a-service and platform or software products.

The company said AI token volume increased roughly tenfold from the previous quarter. About 90% of AI customer revenue came from customers that also used core cloud products, compared with 81% a year earlier. That mix indicates AI adoption is increasingly accompanied by demand for virtual machines, networking, storage, high-performance file systems, Kubernetes and other cloud services rather than being limited to bare-metal infrastructure.

DigitalOcean reported more than $900 million of core cloud ARR, with double-digit year-over-year growth. Approximately 60% of total revenue came from customers using at least four products, while about 75% of AI accounts generating more than $100,000 in annualized revenue used four or more products.

Larger customer accounts also expanded. ARR from customers generating more than $1 million annually climbed 273% to $386 million. These customers accounted for 30% of total ARR, up from 11% in the prior-year quarter. DigitalOcean said its top 25 customers represented 27% of revenue, supporting management’s view that the business does not depend on a single customer.

The company released more than 70 product and platform updates over 65 business days during the quarter. These included previews or launches involving managed agents, agent runtimes, micro virtual machines, observability tools, inference routing, prompt caching and database and compute products.

Capacity expansion and financing

DigitalOcean said it has about 180 megawatts of committed data-center capacity and is pursuing additional capacity for 2028 and beyond. Facilities in Richmond, Kansas City and Memphis were delivered on schedule or earlier during the first three quarters of 2026, according to the presentation. The company has also signed for an additional 30 megawatts for 2028.

The platform currently generates about $18 million of total ARR per average active megawatt across its fleet, with some newer contracts exceeding $20 million per megawatt. Management expects newer GPU generations, elastic computing and broader software adoption to support higher revenue per unit of capacity, though the presentation did not quantify the potential increase.

DigitalOcean secured a $785 million equipment lease facility as its primary method of financing equipment and matching cash outflows with revenue. It also established a $1 billion at-the-market equity program for additional funding flexibility. Net leverage was below 1.5 times at the end of the quarter.

The company reported approximately $1.2 billion of total liquidity, comprising $666 million in cash, $179 million in securities and a $397 million revolving credit facility. It repurchased about $472 million in principal amount of its 0% convertible notes due in 2030, funded through a concurrent registered direct offering, and said it plans to retire the remaining $312 million of 2026 convertible notes at or before maturity using cash on hand.

Revenue and cash-flow outlook raised

For the fourth quarter, DigitalOcean expects revenue of $348 million to $351 million, representing year-over-year growth of 44% to 45%. The company forecasts an adjusted EBITDA margin of 42% to 43% and non-GAAP diluted earnings of $0.30 to $0.32 per share.

DigitalOcean increased its full-year 2026 revenue forecast to $1.208 billion to $1.211 billion from its August range of $1.17 billion to $1.18 billion. The new range implies growth of approximately 34%. It also raised its expected adjusted EBITDA margin to 41% to 42% from 38.5% to 39.5%, non-GAAP diluted earnings to $1.60 to $1.62 per share from $1.35 to $1.40, and adjusted free cash flow margin to 20% to 22% from 11% to 13%.

For 2027, the company projected revenue growth of at least 60%, implying revenue of more than approximately $1.94 billion based on the midpoint of its 2026 guidance.

The outlook remains subject to risks including the availability and timing of data-center capacity, power and GPUs; the company’s ability to manage accelerated infrastructure investment; competition; changing customer demand; AI product adoption; security incidents; capacity constraints; and the ability to sustain profitability and control operating costs. DigitalOcean also cautioned that fluctuations in its results and uncertainty around future non-cash and other expenses may affect actual performance.