DigitalOcean reported strong financial results in Q3, with adjusted EBITDA and non-GAAP earnings per share exceeding guidance. The company introduced equipment leasing to align investments with revenue and repurchased the majority of its 2026 convert to strengthen its balance sheet. Top-line growth was driven by momentum with AI-native customers, traction with digital native enterprise customers, and revenue from new customers. The unified Gradient AI agentic cloud is gaining traction with larger AI native companies. Revenue from highest spending customers grew 41% year-over-year, making up 26% of total revenue. Customers with over $500,000 and $1 million in annualized run rate saw revenue growth of 55% and 72%, respectively, showcasing the ability to attract and retain large customers. DigitalOcean’s AI infrastructure targets AI native customers with a full-stack inference platform featuring advanced capabilities for real-world inference workloads. Fal.ai, a generative media model platform, leverages DigitalOcean’s AI infrastructure for text-to-image and text-to-video models, driving content creation for major customers like Canva and Shopify. The partnership between Fal and DigitalOcean accelerates generative AI content creation by making image and audio generation more accessible. NewsBreak, another AI native customer, uses DigitalOcean’s AI-powered infrastructure to deliver personalized local news to 40 million monthly active users. The integration of AI capabilities with the general-purpose cloud allows NewsBreak to optimize cost and performance for real-time content ranking and ad placement. Unified agentic cloud capabilities like network file storage (NFS) provide high throughput performance for both GPU and non-GPU droplets and accelerate time to value by eliminating idle time. The AI platform layer supports serverless inferencing across popular models and new generative media models from Fal, catering to companies looking to build and deploy intelligent agents and power complex enterprise workflows. Gradient AI has introduced a new knowledge-based service for customers to enhance data accuracy, with features like Guardrails, visual agent orchestration, and enterprise-grade observability. The platform helps companies develop and operate AI agents seamlessly, with a major customer signed after Q3.

A digital systems integrator signed an 8-figure per year contract to use Gradient AI’s agentic cloud for AI transformation. Shakazamba, an Italian leader in ethical AI solutions, chose their platform. The DigitalOcean AI Partner program expanded, empowering AI-native companies to scale their businesses with simplicity.

DigitalOcean continued to innovate in Q3, supporting high-spending customers like Bright Data and VPN Super. These digital native enterprises scale rapidly on the platform, with Bright Data leveraging the agentic cloud for high-volume global workloads. VPN Super’s deal to migrate workloads to DigitalOcean highlights the platform’s reliability and scalability.

New features like Spaces Cold Storage and automated storage auto scaling were introduced to meet customers’ evolving needs. The enhancements offer secure, cost-effective solutions for managing mission-critical data sets seamlessly as businesses grow. Over 35% of customers with more than $100,000 in ARR have adopted new features, leading to increased growth rates.

DigitalOcean raised its full-year 2025 revenue and margin guidance, expecting to reach its 2027 revenue growth target in 2026. The company’s strong performance and growing momentum have led to increased investments to drive growth in 2026 and beyond. Multiple 8-figure contracts were signed after Q3, indicating a significant increase in RPO for Q4. In response to growing AI demands, we’ve increased GPU capacity, secured 30MW of data center capacity, and added equipment financing. With continued investment in engineering, sales, and marketing, we’re on track for strong growth in 2026. Q4 and 2025 results exceed expectations, setting the stage for accelerated growth in 2026 and beyond.

Q3 saw record revenue of $230 million, up 16% YoY, driven by unified agentic cloud and AI revenue doubling YoY. $44 million in incremental ARR brought total ARR to $919 million. Revenue from top customers grew 41% YoY. Net dollar retention remained strong at 99%. Gross profit increased 17% YoY to $137 million, with a 60% gross margin. Adjusted EBITDA was $100 million, a 15% increase YoY, with a margin of 43%.

Non-GAAP diluted net income per share was $0.54, a 4% increase YoY, impacted by balance sheet activities. GAAP diluted net income per share was $1.51, a 358% increase YoY, driven by tax valuation allowance reversal and debt extinguishment gain. Q3 adjusted free cash flow was $85 million, 37% of revenue, up significantly from the prior year. Balance sheet remains strong, with continued investment in equipment financing to align investments with future revenue. The company repurchased 80% of their 2026 convertible notes, totaling approximately $2.9 million in shares in Q3, with a new $625 million 2030 convertible note offering. They project moderate interest expense in the near to medium term after these actions.

The company added a new metric for unlevered adjusted free cash flow, with Q3 unlevered adjusted free cash flow at $85 million or 37% of revenue. They raised their outlook on revenue and adjusted free cash flow margin for 2025 and 2026, with expected revenue growth of approximately 16% year-over-year.

For Q4 2025, the company expects revenue in the range of $237 million to $238 million, with adjusted EBITDA margins of 38.5% to 39.5%. They project non-GAAP diluted earnings per share of $0.35 to $0.40 for Q4, and $2 to $2.05 for the full year. These projections include the impact of Q3 refinancing actions.

Looking ahead to 2026, the company has committed investments in additional data centers and GPU capacity to accelerate growth. They have signed leases for approximately 30 megawatts of new data center capacity that will come online over the course of the year, enabling them to comfortably deliver 18% to 20% growth in 2026.

The company anticipates maintaining high 30s to 40% adjusted EBITDA margins in early 2026 while delivering mid- to high-teens adjusted free cash flow margins. They aim to end 2026 with a healthy balance sheet and net leverage in the mid-3s range, including the impact of any incremental lease-up. They will provide more details on 2026 expectations during an upcoming earnings call in February. DigitalOcean recently signed 8-figure contracts with AI native companies. The customers are utilizing DigitalOcean’s infrastructure and Gradient AI platform to create software engineering experiences. The crossover between AI and core cloud services is increasing, leading to the development of a unified cloud platform called the agentic cloud. The contracts primarily involve inferencing workloads and are spurring the expansion of data center capacity to accommodate customer growth.

The recent high-profile outages on AWS and Azure are driving migration workloads to DigitalOcean. The company has seen an increase in migrations due to dissatisfaction with incumbents and the attraction of new capabilities offered by DigitalOcean, such as advanced networking, droplet configurations, and cold storage. Many of the 8-figure deals are migrations from other hyperscalers, indicating a growing trend towards multi-cloud environments.

In response to the acceleration of 8-figure contracts post-quarter close, DigitalOcean is ramping up capacity to serve these customers. Some customers are already doing business with DigitalOcean, and the company is expanding data center capacity to accommodate the growing needs of customers and their inference scale-up. The increased visibility into customer requirements is driving the need for expanded data center capacity to support future growth. Data centers are set to come online progressively through 2026. Capacity will ramp up in the first half of next year, with a smooth revenue increase expected throughout the year. The company’s strategy is focused on serving AI-native companies with a deep software stack and agentic cloud capabilities.

The company’s strategy is customer-driven, focusing on AI-native companies with real-world applications. They offer GPU and inferencing capabilities, as well as agentic workflow capabilities, storage, databases, authentication, and more. The company continues to enhance its software stack based on real-time customer feedback, positioning themselves well in the market.

Competitor awareness is balanced with a customer-centric approach in decision-making. The company is focused on meeting customer needs while staying competitive and positioning for long-term revenue opportunities. They prioritize customer feedback and market opportunities in adding new functionality to their platform. A company has strategically focused on AI inferencing, combining raw power with agent development for modernizing applications. Despite competition, the company’s software expertise is unmatched, resonating with AI customers. With continued success, they aim to stay ahead and maintain rapid growth in the evolving AI landscape.

The company anticipates significant growth in AI business, with expectations of doubling revenue each quarter. Leveraging success with major customers and AI growth, they aim to see mid to high teens revenue from AI. Confidence is high due to increased visibility and signed contracts, projecting an 18% to 20% revenue increase by 2026.

As AI plays a larger role in the company’s business, they are considering including it in their net dollar retention metric. Customers like Fal are bringing scaled AI workloads, increasing predictability and growth. By incorporating AI revenue in metrics, they aim to showcase the resilience of their growth and enhance communication with investors.

Despite net dollar retention at 99%, there is good expansion momentum and portfolio growth. The company is focused on capturing the ongoing growth of customers, especially as AI becomes a larger part of their business. As they continue to evolve and adapt to market demands, they aim to drive net dollar retention back over 100%. DigitalOcean’s growth is driven by expansion, with big customers spending $100,000 or more in ARR leading the way. Despite having 640,000+ customers, NDR is below 100 due to small spenders. The company anticipates 18-20% revenue growth while maintaining mid-to-high teens in adjusted free cash flow.

DigitalOcean leases all data centers, with costs variable with revenue over the long term but lumpy in the short term. Taking down additional data center capacity incurs upfront costs before generating revenue, leading to higher expenses initially. The company expects gross margins to stabilize after a few quarters of growth. Investing experts issue “Double Down” stock recommendations for companies primed to soar. Nvidia saw $1,000 investment in 2009 grow to $467,519, Apple in 2008 to $52,801, and Netflix in 2004 to $572,405. Stock Advisor offers alerts for three top companies- don’t miss out on this opportunity.

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Read more at Yahoo Finance: DigitalOcean (DOCN) Q3 2025 Earnings Transcript