DigitalOcean Earnings Call Signals Accelerating Cloud Growth

Digitalocean Holdings, Inc. ((DOCN)) has held its Q4 earnings call. Read on for the main highlights of the call.

DigitalOcean Holdings’ latest earnings call struck an upbeat tone, underscoring a business that is accelerating on multiple fronts while still throwing off substantial cash. Management highlighted record organic growth, rising traction with AI-native and large customers, and robust profitability, even as they acknowledged near-term margin and leverage pressure from an aggressive capacity buildout.

Revenue Growth and Crossing the $1 Billion Run Rate

Full-year 2025 revenue climbed to $901 million, with fourth-quarter sales of $242 million, up 18% year over year. Crucially, the company crossed the $1 billion annualized revenue run rate in December, a psychological and strategic milestone that confirms DigitalOcean’s evolution into a scaled cloud platform.

Record Organic ARR and Strengthening Momentum

The company delivered a record $51 million of incremental organic annual recurring revenue in the fourth quarter. On a trailing twelve-month basis, organic ARR additions reached $150 million, the highest level in its history and a clear sign that underlying demand is strengthening rather than slowing.

Digital-Native Enterprise and Large Customer Acceleration

Digital-native enterprise customers now anchor the growth story, with that cohort’s ARR reaching $640 million, or 62% of total ARR, growing 30% year over year. Million‑dollar accounts surged to $133 million in ARR, up 123% year over year, supported by strong net dollar retention and essentially zero churn among the largest customers.

Surging AI Customer Traction

AI-focused customers contributed $120 million in ARR in the fourth quarter, representing rapid 150% year-over-year growth and 12% of total ARR. Notably, about 70% of that AI ARR comes from inference and general-purpose cloud services rather than pure GPU rentals, suggesting a broader platform relationship with AI builders.

Strong Profitability and Cash Generation

DigitalOcean paired rapid growth with impressive profitability, posting full-year adjusted EBITDA of $375 million and a 42% margin, with the fourth quarter at 41%. Trailing twelve-month adjusted free cash flow reached $168 million, or 19% of revenue, while gross margins held near 60%, giving the company ample flexibility to fund expansion.

Raised Near- and Long-Term Growth Targets

Management raised 2026 revenue growth guidance to a range of 19% to 23%, with a midpoint of 21% and an aim to exit 2026 growing 25% or more. They also outlined a credible path to roughly 30% growth in 2027 while still targeting adjusted EBITDA margins in the high 30% range and healthy unlevered free cash flow margins.

Scaling Capacity to Support Future Demand

To underpin that growth, DigitalOcean has committed an additional 31 megawatts of data center capacity scheduled to come online in 2026. About 6 megawatts begin ramping in the second quarter, with the remaining roughly 25 megawatts set for the back half of the year, and management believes this footprint can sustain its 2027 growth ambitions.

Product Wins and High-Profile AI Customers

Customer case studies underscored product competitiveness, with Character AI doubling throughput and cutting cost per token by about half on DigitalOcean’s inference cloud. Healthcare-focused Hippocratic AI also chose the platform for sensitive clinical workloads, and roughly 30,000 OpenClaw GPU droplets have already been launched, validating demand for its AI infrastructure.

Operational Investments and Leadership Expansion

The company is spending aggressively on platform depth, rolling out tools like agent development kits, evaluation frameworks, GPU observability, managed NFS, multi-node GPU, and remote MCP support. It also hired Vinay Kumar, a founding member of Oracle Cloud Infrastructure, as Chief Product & Technology Officer to accelerate its roadmap and sharpen execution.

Capital Allocation and Balance Sheet Moves

DigitalOcean shored up liquidity with an $800 million bank facility and issued $625 million of 2030 convertible notes while repurchasing most of its 2026 converts. It also bought back 2.4 million shares for $82 million and trimmed stock-based compensation to 9% of revenue, though net leverage entered 2025 at roughly 3.2 times.

Margin Pressure from Capacity Ramp

The flip side of the capacity push is that lease expense and GPU depreciation will hit the income statement before the associated revenue arrives. Management explicitly warned that bringing 31 megawatts online in 2026 will compress gross margins and adjusted EBITDA margins in the near term, even as it supports stronger growth later.

Higher Near-Term Leverage and Financing Timing

As new GPU and CPU finance leases ramp, net leverage is expected to temporarily rise above four times, increasing balance-sheet risk in the short run. The plan is to bring leverage back below that level over time as utilization and cash flow from the new capacity build.

Managing Remaining Convertible Maturities

Roughly $312 million of 2026 convertible notes remain outstanding, which the company expects to handle via repurchase or redemption for cash before the end of 2026. Management intends to draw the remaining $120 million on its term loan facility to help retire this paper and avoid equity dilution.

Legacy Product Wind-Down and ARR Headwind

Not all ARR is created equal, and DigitalOcean is deliberately sunsetting a legacy dedicated bare-metal CPU offering. This will remove about $13 million of ARR by the end of 2026, and that headwind is excluded from certain growth metrics to give investors a cleaner view of the core business.

Execution, Supply-Chain, and Cost Risks

The capacity ramp is not without hazards, as management flagged supply-chain and implementation timing risks that could affect how quickly new sites generate revenue. They also acknowledged that data center and equipment costs are rising, though still within economic thresholds assumed in their growth plan.

AI Mix, Margin Dilution, and Competitive Landscape

AI workloads are growing faster but carry lower margins than traditional cloud services, which may nudge ARR per megawatt down from about $22 million today to roughly $20 million by 2027. At the same time, AI inference is a crowded battlefield, with hyperscalers and specialized providers forcing DigitalOcean to innovate quickly to maintain differentiation.

Guidance and Outlook

For the first quarter of 2026, DigitalOcean forecast revenue of $249 million to $250 million, up about 18% to 19% year over year, and adjusted EBITDA margins in the mid‑30s. For the full year, it expects roughly 19% to 23% growth, solid profitability, some temporary margin and leverage pressure from its buildout, and a path toward 30% growth and a “rule of 50+” profile in 2027.

DigitalOcean’s earnings call painted a picture of a cloud challenger leaning hard into AI and large customers while maintaining enviable profitability. Investors will need to stomach a near-term dip in margins and a leverage bump, but the company’s record ARR momentum, expanding addressable market, and ambitious yet well-capitalized capacity plan suggest the growth story is gaining strength, not fading.