AAPL

TSLA

AMZN

META

AMD

NVDA

PEP

COST

ADBE

GOOG

AMGN

HON

INTC

INTU

NFLX

ADP

SBUX

MRNA

Markets

DOCN

Here's Why This Artificial Intelligence (AI) Stock Just Exploded Past Wall Street's Most Bullish Price Target

May 07, 2026 — 04:36 pm EDT

Written by

Anthony Di Pizio for

The Motley Fool->

Key Points

- DigitalOcean is aggressively building AI infrastructure for small and medium-sized businesses (SMBs).

- The company's AI-related annualized revenue surged 221% in Q1 2026, sparking explosive upside in the stock.

- Its stock is no longer cheap, but there could be upside ahead if revenue growth continues to accelerate.

- 10 stocks we like better than DigitalOcean ›

DigitalOcean (NYSE: DOCN) is a cloud computing company that provides hundreds of services to small and medium-sized businesses (SMBs), enabling them to thrive in the digital age. The company is investing aggressively in artificial intelligence (AI) infrastructure to help its customers deploy this revolutionary technology in a simple and cost-effective way.

On May 5, DigitalOcean released its first-quarter 2026 operating results. The report was so strong that its stock blasted higher by 40%, to close at $152.77 on the day. According to The Wall Street Journal, even the most bullish analyst on Wall Street had predicted the stock would reach just $121 over the next 12 months.

Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »

Were analysts underestimating DigitalOcean, or is it simply overvalued now?

Image source: Getty Images.

DigitalOcean continues to expand its AI product portfolio

The cloud industry is dominated by trillion-dollar giants like Amazon and Microsoft, but they mostly target large enterprises because they have the highest spending potential. This leaves the SMB cloud market wide open for providers like DigitalOcean. It captures these customers by offering affordable pricing, highly personalized support, and a simple dashboard to make deploying services easy.

In the first quarter, the company launched a new platform, DigitalOcean AI-Native Cloud, comprising five distinct layers. The bottom (and most important) layer is infrastructure, which includes 20 data centers fitted with the latest AI chips from suppliers like Nvidia and Advanced Micro Devices. DigitalOcean rents the computing capacity to its SMB customers, which can use it to deploy AI applications.

The other four layers work together to help SMBs turn all of that computing power into working AI software, whether they want to build data analysis tools, chatbots, or agents. The platform offers access to the latest AI foundation models from leading start-ups like OpenAI, which can help customers accelerate their development goals.

DigitalOcean allows customers to start with one chip and scale up as needed, which is perfect for running small AI workloads like web-based customer-service chatbots or agents. And the company is staying true to its original cloud business model, allowing customers to pay as they go with no lock-in contracts.

DigitalOcean just significantly raised its revenue growth forecast

DigitalOcean ended the first quarter with $1.03 billion in annual run-rate revenue (ARR), a 22% increase from the year-ago period. It was the third consecutive quarter of accelerating growth, highlighting the company's incredible momentum.

AI customers, specifically, accounted for $170 million of DigitalOcean's ARR at the end of the first quarter, and that figure soared by an eye-popping 221% year over year. Simply put, products like the AI-Native Cloud are quickly becoming the growth engine for the entire company, and that's likely to continue, as demand for computing capacity outstrips supply.

For that reason, DigitalOcean raised $800 million from investors in March, which will go toward building more AI data centers. As more capacity comes online, revenue growth is likely to accelerate further. In fact, management just raised its 2027 growth forecast from 30% to 50%, which is a big reason why DigitalOcean stock rocketed higher on May 5.

DigitalOcean stock is no longer cheap

Based on DigitalOcean's trailing-12-month revenue, its stock is trading at a price-to-sales (P/S) ratio of 17, which is twice its long-term average of 8.1. If we assume the company grows its revenue by more than 50% in 2027, its forward P/S ratio is around 9.2.

Data by YCharts.

From that perspective, there probably isn't much upside left in the tank in the short term. In my opinion, the stock would be a good buy right now if the company could maintain a similar rate of revenue growth in