DOCN Q2 Earnings Beat Estimates, AI-Native Cloud Demand Aids Revenues

DigitalOcean Holdings DOCN reported second-quarter 2026 non-GAAP earnings of 45 cents per share, beating the Zacks Consensus Estimate by 73.08%. The figure declined 23.7% year over year. 

Revenues increased 28.6% year over year to $281.2 million and surpassed the consensus estimate of $278 million by 1.23%. Growth reflected rising demand from high-spending and AI-native customers. Annual run-rate revenue (ARR) reached $1.125 billion, up 29% year over year.

DOCN’s Larger Customers Power Growth

The company added a record $93 million of incremental ARR during the reported quarter, up 191% year over year. Digital Native Enterprise customer ARR accounted for 67% of total ARR, up from 59% in the prior-year quarter.

Growth accelerated across DigitalOcean’s largest customer groups. ARR from customers spending at annualized rates above $100,000, $500,000 and $1 million increased 98%, 160% and 214%, respectively. The $1 million-plus cohort generated $259 million in ARR and represented 23% of the total.

DigitalOcean’s AI Business Gains Scale

AI Customer ARR surged 212% year over year to $234 million and accounted for 21% of company ARR. Importantly, 85% of AI Customer ARR came from inference services and core cloud rather than bare-metal infrastructure.

Inference services ARR advanced 762% year over year, while core cloud ARR from AI customers rose 158%. Bare-metal ARR declined 20%, highlighting a shift toward software-rich services that integrate computing, storage, databases and model-serving capabilities.

DOCN’s Inference Engine Builds Momentum

DigitalOcean launched its Inference Engine in late April. More than 6,000 customers used the service by the end of the quarter, with customer additions averaging nearly 60% month over month. Token volume increased 30-fold over the preceding 60 days.

Open-weight models expanded from roughly 15% of token traffic following the launch to nearly 75%. The platform offers more than 75 open and closed models through one endpoint, while features include intelligent routing, prompt caching, model evaluations, batch inference and model synthesis.

DigitalOcean Maintains Strong Profitability

GAAP Gross margin contracted 490 basis points (bps) year over year to 55% in the second quarter of 2026.

Research and development expenses jumped 45.1% year over year to $57.5 million, while sales and marketing costs increased 17% year over year to $22.6 million. General and administrative expenses jumped 24.2% year over year to $45.2 million.

Adjusted EBITDA increased 27% year over year to $114 million, producing a 40% margin. 

Adjusted operating income rose 9.3% year over year to $67.5 million, with the margin reaching 24%, down 420 bps on a year-over-year basis.

DOCN Expands Cash Flow and Capacity

Cash and cash equivalents stood at $767 million on June 30. 

DigitalOcean secured another 20 megawatts of committed data-center capacity, bringing the total to approximately 155 megawatts. The new capacity is expected to come online in late 2027 and early 2028.

Net cash provided by operating activities was $110 million, up from $92 million a year earlier. Adjusted free cash flow totaled $61 million compared with $57 million, while the adjusted free cash flow margin was 22%.

DigitalOcean Raises Its 2026 Outlook

For the third quarter of 2026, DigitalOcean expects revenues between $304 million and $307 million, indicating growth of 32-34%. 

Adjusted EBITDA margin is projected between 38% and 39%, while non-GAAP earnings are expected between 28 cents and 30 cents per share.

For 2026, DOCN raised its revenue guidance to $1.17-$1.18 billion from $1.13-$1.145 billion. The updated range implies growth of 30-31%, with the fourth-quarter growth rate expected to reach at least 35%.

The company now projects a 38.5-39.5% adjusted EBITDA margin and an 11-13% adjusted free cash flow margin. 

Non-GAAP earnings are anticipated between $1.35 and $1.40 per share, up from the prior outlook of $1.10-$1.20.

Zacks Rank & Other Stocks to Consider

DigitalOcean currently has a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader Zacks Computer and Technology sector that are set to report their quarterly results are Onto Innovation ONTO, Inuvo INUV and Kimball Electronics KE. Each of the three stocks sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Onto Innovation, Inuvo and Kimball Electronics are set to report their quarterly results on Aug. 6, 11 and 12, respectively. Year to date, shares of Kimball Electronics and Inuvo have dropped 3% and 54%, respectively, while Onto Innovation have jumped 85.5%.

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