DigitalOcean: The Inference Cloud Thesis Has Still Not Priced In

First Principles Partners1.77K FollowersFollow5ShareSavePlay(9min)CommentsSummaryDigitalOcean (DOCN) maintains a Buy rating with a new $105 price target, driven by a strategic pivot toward usage-based AI inference services. Q4 2025 results validate the thesis: $901M revenue (+15% YoY), $259M net income (29% margin), and $120M AI ARR, 70% from inference and core cloud. Customer retention is exceptional, with 0% churn in million-dollar cohorts and rapid expansion in $500K and $100K tiers, supporting sustainable growth. Capacity expansion, funded by a 10.4M share equity raise, underpins management’s 21% 2026 revenue growth guidance and 30% targeted growth in 2027. LagartoFilm/iStock via Getty Images Investment thesis update Since my previous analysis of DigitalOcean (DOCN) in October, with a thesis anchored on the Gradient AI Platform's ability to capture the digital native enterprise market, the stock is almost doubled. Such move overThis article was written byFirst Principles Partners1.77K FollowersFollowFirst Principles Partners is an equity research analyst specializing in technology, innovation, and sustainability investment. My unique approach, "First Principles," involves breaking down complex problems to their most basic elements in terms of financial and technology, enabling me to uncover overlooked investment opportunities.With a strong background in investment, private equity and venture capital, I have a proven track record of delivering strong returns for readers. Articles on Seeking Alpha focus on emerging technologies, sustainable investing, and the intersection of innovation and finance. I am passionate about sharing insights with a wider audience and learning from fellow investors. Together, we can drive positive change and contribute to a more sustainable and innovative world.Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.