Morgan Stanley analyst Josh Baer maintained a Buy rating on DigitalOcean Holdings (DOCN – Research Report) today and set a price target of $52.00.
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Josh Baer has given his Buy rating due to a combination of factors that highlight DigitalOcean Holdings’ strong performance and strategic growth potential. The company has shown accelerating revenue and annual recurring revenue (ARR) growth, with notable improvements in net dollar retention rates, particularly in its core cloud services. This is complemented by a significant increase in demand from its largest customers, a strategic focus area, and rapid growth in the AI/ML sector, which has seen over 160% year-over-year growth.
Additionally, DigitalOcean’s disciplined expense management has led to a substantial upside in EBITDA and free cash flow (FCF), with a promising FCF margin guidance for fiscal year 2025 that surpasses previous expectations. The company’s Q4 results have been strong enough to make its FY25 guidance appear conservative, with the AI/ML contributions and larger customer engagements expected to be more substantial in 2025 compared to 2024. These factors collectively underscore a positive outlook for DigitalOcean, justifying the Buy rating.
Baer covers the Technology sector, focusing on stocks such as Box, DigitalOcean Holdings, and Chegg. According to TipRanks, Baer has an average return of 2.8% and a 48.60% success rate on recommended stocks.