Stifel upgrades DigitalOcean to Buy on AI demand, raises target to $160

Investing.com -- Stifel upgraded DigitalOcean Holdings to Buy from Hold and raised its price target to $160 from $135, arguing that growing demand for AI infrastructure, higher GPU pricing and additional capacity expansion should drive stronger earnings and revenue growth over the next several years.

The brokerage said recent developments have strengthened its outlook, including DigitalOcean's decision to increase prices for its GPU instances, which it expects will lift revenue generated per megawatt of capacity into the mid-to-high teens. It also pointed to the company's recent debt-for-equity conversion, saying the move frees up financing for future data center expansion while keeping leverage below management's target.

Stifel introduced 2028 forecasts above Wall Street expectations, projecting revenue of $2.56 billion and earnings per share of $3.57, compared with consensus estimates of $2.45 billion and $2.91, respectively. Its valuation target is based on roughly 45 times its newly introduced 2028 earnings estimate.

The brokerage said it expects DigitalOcean to benefit from broader adoption of open-weight AI models, arguing that falling large language model token costs should encourage greater compute usage and expand demand for cloud infrastructure. It also believes the company is successfully moving beyond its traditional small-business customer base into larger enterprise accounts, citing recent high-value customer commitments and a sharp increase in remaining performance obligations.

While Stifel acknowledged near-term margin pressure from bringing new capacity online, it expects the additional GPU infrastructure to ultimately generate operating margins above 30%, supported by scale benefits and a more concentrated enterprise AI customer base.

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