1 Growth Stock Smart Money Is Buying Aggressively

Growth stocks have struggled this year as geopolitical tensions have caused investors to shift their focus away from risky AI stocks and into more stable and defensive sectors. However, many of these less-hyped growth stocks kept working behind the scenes. 

One such growth stock is DigitalOcean (DOCN), which is quietly transforming itself into a serious contender. And investors are starting to take notice. DOCN stock has outperformed all the big tech titans so far this year, climbing 194% over the last 52 weeks and 88% year-to-date (YTD), outperforming the broader market dip of 1%.

Should you join the rally?

The Shift From Developer Cloud to AI Powerhouse

Valued at $9.2 billion, DigitalOcean started small as a cloud computing company that provides simple, affordable infrastructure for developers and businesses to build, run, and scale applications.

In a crowded cloud market, with giant hyperscalers like Amazon (AMZN) Web Services, Microsoft (MSFT) Azure, and Alphabet's (GOOG) (GOOGL) Google Cloud with a plethora of resources, DigitalOcean initially struggled to establish itself. However, the company never tried to compete with the giants. It instead focused on carving out a defensible niche. It provided products with ease of use, transparent pricing, and streamlined deployment. Its offerings, which include virtual machines (Droplets), managed databases, storage, and now AI-focused infrastructure, are all tailored to developers, startups, and AI-native businesses that value speed and efficiency above complexity.

When investors look for growth stocks, factors like strong revenue growth, a large addressable market, expanding margins, and a clear competitive advantage stand out. DigitalOcean checks all these boxes.

In fiscal 2025, revenue grew 15% year-over-year (YoY) to $901 million, surpassing a $1 billion revenue run-rate milestone. Unlike many AI infrastructure companies burning cash to achieve scale, DigitalOcean is doing it profitably, which is impressive. Adjusted earnings in the year rose 10.4% YoY to $2.12 per share. The company also reported 42% adjusted EBITDA margins and 19% free cash flow margins. This combination of growth plus profitability is undoubtedly what “smart money” is looking for in AI stocks now. 

DigitalOcean has built its reputation as a company that offers simple, cost-effective cloud solutions to individual developers and small teams. It is now shifting its focus toward higher-value customers, especially cloud-native and AI-native businesses. Large customers, the ones spending over $1 million annually, are growing at 123% YoY. 

There is another unique approach. DigitalOcean has adopted that has caught investors’ attention. It isn’t trying to compete in an expensive and capital-intensive race to train large language models. Instead, it is focusing on inference, which is the process of deploying AI models in real-world scenarios. It provides a vertically integrated platform that includes compute, storage, networking, and AI capabilities in a single environment. This strategy is already gaining traction with fast-growing AI companies such as Character.AI and Hippocratic AI.

What truly sets DigitalOcean apart is its financial discipline. The company’s ability to generate consistent free cash flow allows it to invest in infrastructure, repurchase shares, and strengthen the balance sheet, all without relying heavily on external capital.

Looking ahead, management expects revenue growth of 21% in 2026, eventually expecting 30% growth in 2027, in line with the consensus estimates. Analysts expect a 53% dip in earnings in 2026, which could then rebound by 72% in 2027. While DigitalOcean is an outstanding growth stock to buy now, it is trading at a premium of 52x forward 2027 earnings. 

DOCN Stock: Why Smart Money Is Paying Attention Now

DigitalOcean is no longer just a small-scale cloud provider but is emerging as a serious contender in the AI infrastructure space. DOCN stock has climbed from $37 to $89 in just one year. With accelerating growth, strong profitability, and increasing adoption among high-value customers, this is the type of growth stock that "smart money" seeks in a volatile market. For investors looking beyond the obvious AI giants, DigitalOcean may be one of the most compelling under-the-radar growth stories for the coming decade. 

Wall Street sees DOCN stock as a “Moderate Buy.” Out of the 15 analysts covering DigitalOcean, 10 have a “Strong Buy” recommendation, and five suggest a “Hold.” DOCN stock is trading above its average analyst price target of $83.67. However, the Street-high price estimate of $105 implies a 25% potential upside over the next 12 months.