DigitalOcean Q1 Earnings Call Highlights

DigitalOcean NYSE: DOCN reported what executives repeatedly described as a strong first quarter of 2026, citing accelerating demand from large cloud and AI-native customers, the launch of a new “AI-Native Cloud” platform, and expanded data center commitments intended to support growth into 2027 and beyond.

On the company’s earnings call, CEO Paddy Srinivasan said Q1 revenue was $258 million, up 22% year-over-year, and that DigitalOcean “beat every financial target we shared in our last call.” He also highlighted growth in larger customer cohorts, with “+$1 million customers growing 179% year-over-year to $183 million in ARR,” and “AI customer ARR” growing 221% year-over-year to $170 million.

Q1 results and customer metrics

CFO Matt Steinfort said DigitalOcean exceeded its prior guidance “on all key metrics,” attributing the revenue outperformance primarily to “strong retention in our top D&E cohorts and from expansion in our top cloud and AI native customers.” He noted the Richmond data center, which began ramping revenue in March, contributed less than $500,000 in Q1 and “less than 20 basis points” of year-over-year growth, indicating the quarter’s results were not driven by new capacity.

Profitability metrics highlighted on the call included:

• Adjusted EBITDA: $105 million, up 21% year-over-year, with a 41% margin.
• GAAP operating income: $37 million, representing a 14% operating margin.
• Adjusted operating income: $64 million, representing a 25% adjusted operating margin.
• Trailing 12-month adjusted free cash flow: $171 million, or 18% of revenue.
• Trailing 12-month adjusted free cash flow less lease principal payments: $154 million, or 16% of revenue, including $17 million in financed equipment principal payments.

Srinivasan also cited a “record $62 million in incremental organic ARR” and said remaining performance obligations (RPO) reached $243 million, “up an extraordinary 1,700% year-over-year.” He added that inference and core cloud “pull-through increased to more than 80% of total AI customer ARR, up from 70% in Q4,” arguing this showed the company is “not a GPU rental business,” but rather “a full stack cloud platform” supporting production AI workloads.

AI-Native Cloud launch and product focus

Srinivasan said DigitalOcean launched the DigitalOcean AI-Native Cloud at its Deploy conference in San Francisco, calling it “the most significant product launch in our history,” with “more than 15 new product launches across five fully integrated layers.” He described market shifts underpinning the strategy, including inference overtaking training workloads, open-source AI moving into production, the rise of reasoning models, and agentic systems shifting “from experimentation to production.”

As described on the call, the platform includes infrastructure and core cloud services—such as Kubernetes, CPU and GPU “Droplets,” virtual private cloud networking, object/block/file storage, and “high-performance NFS”—as well as a new inference engine that supports serverless and dedicated endpoints, batch processing, and an “intelligent policy-aware inference router.” Srinivasan said the model catalog includes “over 70 open source and closed source frontier models with day zero access,” and supports “BYOM” (bring your own model).

He also pointed to an “enterprise version” of managed MySQL and PostgreSQL, vector database support, and a “managed agents platform” with tooling such as state management, observability, and orchestration, emphasizing that the stack is designed to provide “zero lock-in” via open-source options “at every single layer.”

Srinivasan cited third-party benchmarking from Artificial Analysis, saying the firm reported DigitalOcean delivered “the number one output speed for leading open source models like DeepSeek V3.2” and Qwen, including “230 output tokens per second on DeepSeek V3.2,” which he said was “3.9x faster than one of the leading hyperscalers.”

He also named several customers using the platform, including Cursor, Ideogram, and Hailo AI, describing them as AI-native companies running production workloads on DigitalOcean’s stack.

Equity raise, debt actions, and capacity expansion

Management also focused on capital actions and capacity planning. Srinivasan said the company raised $888 million in equity during Q1, which he said strengthened the balance sheet and enabled DigitalOcean to secure “60 MW of incremental capacity” slated to ramp throughout 2027, bringing total committed capacity to “135 MW.” He added the company remains on track to deliver its previously communicated 31 MW in 2026.

Steinfort said proceeds from the equity raise were allocated to two main priorities. “The first priority was strengthening the balance sheet,” he said, noting DigitalOcean repaid its full $500 million Term Loan A, which he said would save “roughly $50 million per year in cash interest and mandatory prepayments.” He added the company intends to use part of the remaining cash to retire $312 million of 2026 convertible notes at maturity, and said these actions leave the company with “no material maturities until 2030.”

The second priority was expanding capacity. Steinfort said the newly secured 60 MW across four locations represents an “80% increase” in committed capacity and is projected to begin ramping revenue over 2027. He cautioned that some build-out may begin in late 2026, which “will impact 2026 cash flow and margins.” He also said capex per megawatt for the new capacity is expected to be higher than for equipment ordered last year, driven by rising component costs and “higher cost and higher token capacity equipment,” though he said DigitalOcean expects “the same or higher return on investment” and “incremental ARR per megawatt to be higher as well.”

Guidance raised for 2026 and 2027 outlook increased

DigitalOcean raised its outlook for both the near term and medium term. For Q2 2026, Steinfort guided revenue to $272 million to $274 million (24% to 25% year-over-year growth) and adjusted EBITDA margin of 37% to 38%. He guided non-GAAP diluted net income per share of $0.20 to $0.23 on approximately 121 million to 122 million weighted average fully diluted shares.

For full-year 2026, Steinfort guided revenue of $1.13 billion to $1.145 billion, representing 25% to 27% year-over-year growth, with an “exit growth rate approaching 30% in Q4.” Both Srinivasan and Steinfort emphasized this 2026 outlook does not include revenue from the newly committed 60 MW.

Steinfort projected full-year adjusted EBITDA margins of 37% to 39% and adjusted free cash flow margin of 9% to 12%, which includes about $100 million of “projected non-recurring start-up cost” tied to new capacity. Excluding those costs, he said adjusted free cash flow margin would be “roughly 18% to 21%.” He guided full-year non-GAAP diluted net income per share of $1.10 to $1.20 on 118 million to 119 million weighted average fully diluted shares, saying interest savings from retiring Term Loan A more than offset the higher share count from the equity raise.

Looking into 2027, Steinfort said DigitalOcean now expects revenue to “exceed $1.7 billion,” representing “50% or more” growth year-over-year, with “approximately 40% adjusted EBITDA margins and high teens adjusted free cash flow margins.” Srinivasan said the company expects to exit 2026 with growth “approaching 30%,” accelerating in 2027 as new capacity ramps.

During Q&A, executives addressed several topics investors raised, including pricing, the mix of CPU and GPU in agentic workloads, and the shift away from bare metal. Steinfort told analysts the company is not seeing price compression in the GPU market and cited “increases in the prices for H100 and H200 and some of the legacy gear.” He also said the company has flexibility because it does not lock customers into four- or five-year contracts, allowing it to “raise the price” as contracts come up for renewal or steer customers to higher-value services such as serverless inferencing.

On competitive dynamics, Srinivasan said it is “a great validation of our strategy” that neo-cloud providers are adding software, but argued DigitalOcean is “in fundamentally different businesses,” positioning itself as an “inferencing and agentic platform” with a broader cloud stack and open-source options. He said the company’s pipeline is multiple times current capacity and described capacity allocation as “a balancing act,” saying DigitalOcean aims to “run this like a cloud” with many customers rather than a few concentrated contracts.

Srinivasan also characterized the current stage of adoption, telling Barclays analyst Raimo Lenschow that for inference, “we are probably in the top of the second inning,” while for agentic technology, “we are just in the national anthem.”

About DigitalOcean NYSE: DOCN

DigitalOcean Holdings, Inc is a cloud infrastructure provider that focuses on simplicity, performance and developer experience. The company offers a range of cloud services designed to help software developers, startups and small- to medium-sized businesses deploy, manage and scale applications. Its flagship offering, Droplets, provides virtual private servers that can be configured with various CPU, memory and storage options. In addition to compute instances, DigitalOcean's platform includes managed Kubernetes, scalable object and block storage, managed databases, load balancers and networking capabilities such as Virtual Private Cloud (VPC) and Floating IPs.

Founded in 2011 and headquartered in New York City, DigitalOcean was created with the goal of making cloud computing more accessible to individual developers and smaller teams.

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