Key Highlights

● Revenue was $281.2 million, up 29% from $218.7 million.

● A record $93 million of incremental annual recurring revenue was added.

● AI customer annual recurring revenue rose 212% to $234 million.

● The full-year revenue outlook is now $1.170 billion to $1.180 billion.

DigitalOcean Holdings, Inc. (NYSE:DOCN) reported second-quarter 2026 results on 4 August 2026. Revenue was $281.2 million, up 29% from $218.7 million, and annual recurring revenue, calculated as quarterly revenue multiplied by four, reached $1,125 million. The company added a record $93 million of incremental annual recurring revenue, and annual recurring revenue from customers using its artificial intelligence services rose 212% to $234 million. It also raised its full-year revenue outlook.

Business and Sector

DigitalOcean provides cloud infrastructure aimed at developers, start-ups and small and medium-sized businesses, and is positioning an AI-native cloud for companies that build and run AI applications. In the quarter it launched an Inference Engine, shipped more than 80 product releases since April, and added 20 megawatts of committed data centre capacity due in 2027 and 2028, bringing its total to about 155 megawatts.

The sector is dominated by hyperscale providers, with smaller specialist clouds competing on simplicity, price and focus. Demand for AI computing is shifting the mix of workloads, and larger customers are signing longer commitments.

Latest Results

Customers spending over $100,000 a year grew in number by 9%, but their revenue rose 98% and accounted for 35% of total revenue. Customers above $1 million grew in number by 73%, with revenue up 214%, equal to 23% of revenue. Remaining performance obligations were $894 million, of which $366 million is expected within twelve months, compared with $71 million a year earlier. DigitalOcean also signed its first nine-figure annual customer commitments, and the weighted average contract life rose from 1.6 years to more than three years.

Net income was $35.4 million, down 4%, or $0.29 per diluted share, while adjusted EBITDA rose 27% to $113.6 million, a 40% margin. Operating income fell 18% to $29.4 million.

Financial Performance and Industry Context

Operating cash flow was $110.0 million. Adjusted free cash flow was $60.6 million, a 22% margin against 26% a year earlier. Cash and equivalents were $767.0 million at 30 June 2026.

The company repurchased about $472 million of its 0.00% convertible senior notes due 2030, funded by a concurrent registered direct offering. Total debt on the balance sheet was about $921 million, and finance lease and equipment financing obligations were about $578 million.

For the third quarter, DigitalOcean guided to revenue of $304 million to $307 million, growth of 32% to 34%. For 2026 it now expects revenue of $1.170 billion to $1.180 billion and adjusted EBITDA margin of 38.5% to 39.5%. Management said it expects growth of about 30% in 2026, reaching 35% or more by the fourth quarter, and more than 50% in 2027.

Risks and Uncertainties

The ambition for accelerating growth depends on bringing new data centre capacity online and filling it with committed customers. Capacity due in 2027 and 2028 requires capital, and the company already carries convertible debt and lease obligations.

Profit measures grew more slowly than revenue. Operating income and net income declined, and adjusted free cash flow margin narrowed. Customer concentration is rising as larger accounts account for a growing share of revenue, so the loss or delay of a major commitment would matter more than before.

AI infrastructure is also an area where pricing and technology change rapidly, and competition from hyperscalers and specialist providers is intense.

Capacity build and growth targets

DigitalOcean's second quarter shows faster growth and larger contracts, with operating income and adjusted free cash flow margin lower than a year earlier. Developments worth watching include whether third-quarter revenue falls within the guided range, how quickly new capacity is deployed, the trend in adjusted free cash flow, further large customer commitments, and progress towards the growth targets for the fourth quarter of 2026 and for 2027.