DigitalOcean Q3 Earnings Call Highlights

Key Points

• DigitalOcean’s Q3 revenue rose 40% year over year to $321 million, beating the high end of guidance by more than $14 million; AI customer ARR climbed 288% to $376 million.
• AI inference and related services drove momentum: inference-services revenue grew nearly 600%, while token volume on the Inference Engine increased about tenfold sequentially. Most AI customer revenue also came from customers using DigitalOcean’s Core Cloud products.
• The company raised its outlook, forecasting 2026 revenue growth of about 34% and at least 60% growth in 2027, up from its prior expectation of more than 30%.

DigitalOcean NYSE: DOCN reported third-quarter 2026 revenue of $321 million, up 40% from a year earlier, as the cloud provider cited accelerating demand for AI inference, agentic applications and related cloud services. The company raised its revenue outlook for both 2026 and 2027.

Chief Executive Officer Paddy Srinivasan said the quarter marked DigitalOcean’s fifth consecutive period of accelerating growth. Revenue exceeded the high end of the company’s guidance by more than $14 million, while the company added a record $160 million in annual recurring revenue, or ARR, during the quarter.

Total ARR ended the quarter at about $1.28 billion, up 40% year over year. AI customer ARR reached $376 million, an increase of 288%, according to the company.

AI services drive growth and platform adoption

Srinivasan said DigitalOcean’s results were driven by growth in inference services, increased use of Core Cloud products alongside AI workloads, utilization of its elastic-compute fleet, higher pricing for short-term capacity and early adoption of agentic AI services.

“Customers are adopting our AI-Native Cloud as a complete platform,” Srinivasan said, describing a strategy that combines GPU capacity and inference with cloud computing, data, storage and tools for AI agents.

The company said token volume on its Inference Engine increased roughly tenfold sequentially during the third quarter. It launched Managed Agents, Agent Learning Services and Agent Data Services, which Srinivasan said are designed to enable AI agents to operate in secure environments, access tools and data, retain context and improve over time.

DigitalOcean said 90% of AI customer revenue in the quarter came from customers that also used its Core Cloud products. Customers using four or more products accounted for roughly 60% of total revenue, including the majority of AI accounts spending at least $100,000.

The company cited Amplitude as an example of a customer using its platform for agent runtime, dynamic tool access and inference in connection with the analytics company’s Amplitude Wave product.

DigitalOcean also said more than 4,000 customers have used its Inference Router, a service intended to optimize model selection and cost. Srinivasan said the company launched 37 models since April and averaged more than half a trillion tokens per day through OpenRouter, which he described as a source of spillover demand for idle cycles.

Profitability and customer metrics

Chief Financial Officer Matt Steinfort said ARR from customers spending at least $100,000 increased 133% year over year and represented 41% of total ARR. ARR from customers spending at least $1 million rose 273% and represented 30% of ARR.

More than 90% of AI customer ARR came from inference services and Core Cloud products, Steinfort said. Inference-services revenue increased nearly 600% from the prior-year quarter.

On profitability, DigitalOcean reported:

• GAAP gross margin of approximately 50%.
• Adjusted EBITDA of $144 million, up 45% year over year, with a 45% margin.
• Adjusted operating income of $74 million, representing a 23% margin.
• Non-GAAP diluted earnings per share of $0.45, above its prior outlook of $0.28 to $0.30.
• Trailing 12-month adjusted free cash flow of $220 million, or a 20% margin.

The company posted a GAAP net loss of $43 million, or $0.37 per share. Steinfort attributed the loss to a $57 million induced-conversion expense associated with the partial repurchase of its 2030 convertible notes. Excluding that one-time expense, he said the company would have recorded positive GAAP net income.

Capacity expansion and funding plans

DigitalOcean said it has brought three planned 2026 data centers online: Richmond in the first quarter, Kansas City in the second quarter and Memphis in the third quarter. Srinivasan said each facility was launched ahead of schedule.

The company secured an additional 20 megawatts of committed capacity for 2028 during the third quarter, bringing total committed capacity to about 180 megawatts. Steinfort said just over 75 megawatts are currently active, with roughly another 75 megawatts contracted for 2027 and 30 megawatts expected in 2028.

DigitalOcean reported $18 million in ARR per average active megawatt across its fleet. Management said it expects that figure to rise as it deploys newer, more token-efficient technology and expands sales of higher-margin platform services.

Steinfort said the company ended the quarter with approximately $1.2 billion in total liquidity, including $845 million in cash equivalents and marketable securities and roughly $400 million of availability under its revolving credit facility. Net leverage was 1.2 times.

In September, the company secured a $785 million equipment lease facility. It also established a $1 billion at-the-market equity program, which Steinfort said provides flexibility if the company chooses to raise equity. DigitalOcean plans to retire the remaining $312 million of its 2026 convertible notes by or before their December maturity.

Outlook raised for 2026 and 2027

For the fourth quarter, DigitalOcean forecast revenue of $348 million to $351 million, representing year-over-year growth of 44% to 45%. It expects adjusted EBITDA margin of 42% to 43% and non-GAAP diluted earnings per share of $0.30 to $0.32.

For full-year 2026, the company now expects revenue of $1.208 billion to $1.211 billion, or about 34% growth. Its outlook calls for adjusted EBITDA margin of 41% to 42%, adjusted free-cash-flow margin of 20% to 22%, and non-GAAP diluted earnings per share of $1.60 to $1.62.

DigitalOcean also raised its 2027 outlook, forecasting revenue growth of at least 60%, up from its previous expectation of more than 30%. The company said it will provide detailed 2027 margin and cash-flow guidance with its fourth-quarter results in February.

About DigitalOcean (NYSE:DOCN)

DigitalOcean Holdings, Inc is a cloud computing company that provides infrastructure and developer-focused services for startups, small and medium-sized businesses, and individual developers. Its platform is designed to simplify the deployment, management, and scaling of applications without requiring customers to build and operate extensive in-house infrastructure.

The company's offerings include Droplets, its virtual machine service; managed Kubernetes; managed databases; object and block storage; networking tools; and application deployment services through App Platform.

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