The firm increased its price forecast to $200 from $107 in a Wednesday note.

The update follows management’s decision to raise fiscal 2026 revenue guidance to 25%-27% growth. Analyst Wamsi Mohan now expects fiscal 2027 revenue to surge above 50% year-over-year.

Expanding Capacity To Meet AI Demand

DigitalOcean is aggressively scaling its physical infrastructure. Management announced an additional 60 megawatt (MW) of capacity expansions. This brings the total committed capacity to approximately 135MW.

Mohan said the shift toward more central processing unit (CPU) infrastructure in an inference- and agentic-driven environment could drive upside to the previously guided $13 million annual recurring revenue (ARR) per megawatt.

The firm noted that higher inferencing workloads should drive meaningful long-term revenue and free cash flow growth.

Focus On Agentic AI And High-Value Tiers

The analyst highlighted the company’s evolution into an “Agentic AI beneficiary.” DigitalOcean recently signed Cursor as a customer, signaling a shift toward orchestration and agent-driven demand.

Customer metrics reinforce the shift, with DigitalOcean expanding its $1 million-plus ARR cohort by 179%, now accounting for 18% of total ARR. Meanwhile, the $500,000-plus cohort grew 132%.

Investment Costs and Margin Pressure

The growth comes with significant upfront costs. DigitalOcean will incur $100 million in non-recurring charges in fiscal 2026. These funds will outfit data centers with liquid cooling for next-generation servers.

The report noted that free cash flow margins could come under incremental pressure, but added that finance leases better align the timing of investments with revenue generation.

The company aims to keep leverage below 4 times net debt-to-adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) while sustaining EBITDA margins of around 40%.

Revised Valuation And Estimates

BofA updated its fiscal 2026 earnings per share estimate to $1.29, up from $1.11. The new $200 price forecast is based on 37 times calendar 2028 estimated enterprise value to adjusted free cash flow.

DOCN Stock Price Activity: DigitalOcean Holdings shares were up 0.23% at $153.12 at the time of publication on Wednesday. The stock is trading near its 52-week high of $153.47, according to Benzinga Pro data.

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