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DigitalOcean Earnings Call: AI/ML Growth Fuels Optimism

DigitalOcean Earnings Call: AI/ML Growth Fuels Optimism

Digitalocean Holdings, Inc. ((DOCN)) has held its Q2 earnings call. Read on for the main highlights of the call.

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DigitalOcean Holdings, Inc. recently held its earnings call, revealing a positive outlook driven by robust revenue growth, particularly in the AI/ML segment, and improved profitability. Despite some challenges with net dollar retention and constraints on share repurchases due to debt priorities, the company’s performance and future outlook remain strong.

Strong Revenue Growth

DigitalOcean reported a significant revenue increase for Q2 2025, reaching $219 million, which marks a 14% year-over-year growth. This impressive performance has led the company to raise its full-year revenue guidance to a range of $888 million to $892 million.

AI/ML Business Expansion

The AI/ML segment has been a standout performer, with revenue growing over 100% year-over-year. This growth is fueled by strong demand for AI infrastructure, particularly in inferencing workloads, highlighting DigitalOcean’s strategic focus on this burgeoning sector.

High Incremental ARR

DigitalOcean achieved an incremental annual recurring revenue (ARR) of $32 million, the highest since Q4 2022 and the highest organic incremental ARR in over three years. This milestone underscores the company’s ability to drive consistent growth in its recurring revenue streams.

Profitability and Cash Flow

The company’s profitability metrics are equally impressive, with an adjusted EBITDA of $89 million and a margin of 41% for Q2. Additionally, the adjusted free cash flow was $57 million, or 26% of revenue, prompting an increase in full-year free cash flow guidance to 17% to 19% of revenue.

Product Innovation

DigitalOcean has been active in product development, releasing over 60 new products and features, including a new AI platform and advanced networking features. These innovations have been well-received by top customers, reinforcing the company’s competitive position.

Net Dollar Retention Challenges

Despite the positive trends, the company reported a net dollar retention (NDR) of 99%, which is slightly below expectations. This indicates that some customers are cautious and not scaling as rapidly as anticipated.

Debt and Share Repurchase Constraints

DigitalOcean is prioritizing addressing its 2026 convertible debt, which has limited its ability to repurchase shares. Currently, only $3.4 million remains on the share repurchase authorization, reflecting the company’s focus on managing its debt obligations.

Forward-Looking Guidance

In light of the strong financial results, DigitalOcean has increased its full-year guidance for both revenue and profitability metrics. The company is capitalizing on momentum in its AI/ML platform and core cloud services, with significant progress in product innovation and customer acquisition strategies. The raised revenue guidance to $888 million to $892 million and increased free cash flow guidance to 17% to 19% of revenue reflect the company’s confidence in its growth trajectory.

In conclusion, DigitalOcean’s earnings call paints a picture of a company on a strong growth path, driven by strategic expansions in the AI/ML segment and robust financial performance. While challenges such as net dollar retention and debt management remain, the overall sentiment is positive, with a clear focus on innovation and customer growth.

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