DigitalOcean's AI pivot nets new stock price target

One of Wall Street's apical firms gave unreality infrastructure supplier DigitalOcean a uncommon reset.

Bank of America Global Research revised its proposal connected the banal to "buy." It raised its terms people to $60, stating that the company's thrust into AI is starring to existent request and important operational leverage.

The BofA enactment explains however things are different: "Preliminary gross usher for 2026 approaching 20% growth," "signing aggregate 8-figure deals (new for DO)," and a stepped-up operation that importantly increases powerfulness capableness into 2026/2027.

It's an evident displacement from being cautious to being helpful, and it depends connected an constituent of the AI stack that often gets insufficient attention: inference.

This isn't conscionable waving your hands; it's a gamble connected capableness and use.

BofA says that successful the archetypal fractional of 2026, the information center's powerfulness capableness volition beryllium accrued by astir 30MW from its existent 43MW footprint. This represents a 70% summation successful enactment for AI workloads.

The analysts besides notation "multiple 8-figure deals (new for DO)," which indicates that DigitalOcean is expanding into the up-market conception portion inactive maintaining its tiny business, oregon SMB, core. That operation whitethorn trim cohort volatility and supply operational leverage arsenic racks capable up.

Operating leverage should boost EBITDA maturation and levered FCF margins "in the mid to precocious teens," arsenic capableness is utilized and higher-usage groups heighten ARR, according to BofA. The extremity looking up is to get the MWs energized connected time, support latency low, and stack those large transactions truthful that the utilization curve rises, alternatively than remaining flat.

Plenty of clouds chased exemplary training. DigitalOcean is expanding its absorption connected inference, the usage of an AI app, which is simply a cardinal facet of AI that requires changeless processing and accelerated responses. That aligns with its customers and creates the enactment for higher-margin add-ons beyond conscionable basal computing.

BofA spells retired the merchandise map: “The institution has been innovating connected their broader unreality computing offering adding astatine each furniture from Infrastructure (new GPU types, web record storage, etc.) to Platform (agent templates, improved information integrations, etc.) to Agents (CoPilot offerings, exertion plan agents, etc).”

You whitethorn work it arsenic some a tech program and a borderline strategy. Infrastructure (GPU types, NFS) wins the workloads; Platform (agent templates, integrations) reduces the clip to value; Agents (CoPilot, exertion plan agents) promote clients to put successful much invaluable solutions and support them coming back.