Why DigitalOcean Rocketed Higher This Week

Shares of cloud computing platform DigitalOcean (NYSE: DOCN) were up 8% this week at 10:30 a.m. ET, according to data provided by S&P Global Market Intelligence.

The company reported fourth-quarter earnings earlier in the week and easily surpassed analysts' expectations. Revenue increased by 13% in Q4, and management guided for an additional 12% of sales growth in 2025.

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DigitalOcean's big (small business) ambitions

While DigitalOcean's results were impressive overall, two specific items stood out during the earnings call.

First, sales increased by 37% in the company's Scalers category -- its largest customers, who spend at least $100,000 with DigitalOcean annually. This is a critical statistic for DigitalOcean, as the company's simple, scalable, and approachable cloud computing offerings typically appeal to customers in the small and medium-size business (SMB) niche.

By offering a simpler and more affordable cloud computing experience, the company differentiates itself from the cloud-computing juggernauts, which generally focus on serving their mega-cap peers.

But with its Scalers cohort growing sales faster than the rest of its business, DigitalOcean continues to retain its highest-spending customers and isn't losing them to the hyperscalers.

Second, DigitalOcean's artificial intelligence (AI) and machine learning (ML) platform offerings generated annual recurring revenue growth of 160%. The company offers its SMB customers on-demand access to the graphics processing units often necessary for AI.

For example, one customer leveraged DigitalOcean's AI/ML platform to create advanced weather forecasts for its clients, and many others have started experimenting with AI agents in their applications.

DigitalOcean is trading at 49 times earnings while stuck somewhere between "growth stock" and "cash cow." Prospective investors should plan on holding at least five years.

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Josh Kohn-Lindquist has positions in DigitalOcean. The Motley Fool has positions in and recommends DigitalOcean. The Motley Fool has a disclosure policy.