DigitalOcean Q2 Earnings Call Highlights
Key Points
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- DigitalOcean’s revenue rose 29% year over year to $281 million in Q2 2026, exceeding guidance. Management raised its full-year outlook to approximately 30.5% growth, with fourth-quarter growth expected to reach at least 35%.
- Growth was driven by large customers and AI offerings: AI customer ARR surged 212% to $234 million, while ARR from customers spending at least $1 million increased 214%. Inference services grew nearly 800% year over year, and more than 6,000 customers have used the company’s Inference Engine since its April launch.
- DigitalOcean maintained strong profitability, reporting a 40% adjusted EBITDA margin and $61 million in adjusted free cash flow. The company is expanding data-center capacity, with approximately 155 megawatts committed, to meet demand that management said continues to exceed available supply.
DigitalOcean (NYSE:DOCN) reported second-quarter 2026 revenue of $281 million, up 29% from a year earlier and above the high end of its guidance, as growth accelerated among its largest customers and AI-focused offerings gained adoption.
Chief Executive Officer Paddy Srinivasan said the company added a record $93 million in annual recurring revenue during the quarter, nearly triple the incremental ARR reported in the year-earlier period. The company also raised its full-year outlook, citing demand that it said continues to exceed available capacity.
“We delivered 29% year-over-year revenue growth while continuing to have strong profitability,” Srinivasan said. He added that DigitalOcean expects roughly 30% revenue growth for the full year and at least 35% growth in the fourth quarter.
Large Customers and AI Revenue Drive Growth
DigitalOcean said ARR from customers spending at least $100,000 annually rose 98% year over year. ARR from customers spending at least $500,000 increased 160%, while ARR from customers spending $1 million or more climbed 214%.
The company’s largest customer cohort represented 23% of total ARR in the second quarter, compared with 9% a year earlier. AI customer ARR reached $234 million, rising 212% year over year, according to Chief Financial Officer Matt Steinfort.
DigitalOcean said 85% of AI customer ARR came from inference services and Core Cloud products rather than Bare Metal offerings. Inference services grew nearly 800% year over year and accounted for more than 70% of total AI customer ARR, Srinivasan said.
The company’s remaining performance obligations rose to $894 million, more than 12 times the prior-year level, with an average duration of 3.7 years. Steinfort said those commitments were secured from a range of customers and that the company’s top 25 customers accounted for 20% of ARR during the quarter.
DigitalOcean also said it would no longer emphasize net dollar retention as a key metric. NDR reached 102% in the quarter, a three-year high, but Steinfort said the measure has become less representative of the company’s business as growth increasingly comes from its biggest customers and newer AI customers.
Inference Engine Expands AI Platform Adoption
DigitalOcean launched its Inference Engine in late April, offering managed serverless inference and related technologies. Srinivasan said more than 6,000 customers have used the service since launch, with customer count growing by nearly 60% on average each month. Token volume increased 30-fold over the past 60 days, he said.
Open-weight models accounted for about 15% of token volume shortly after the launch and had grown to nearly 75% by the time of the call. The company said it now offers more than 75 open- and closed-source models through a single endpoint and has completed 14 day-zero model launches since April.
Srinivasan said DigitalOcean is seeing a shift from customers seeking the greatest possible token consumption toward optimizing the quality, latency and cost of AI workloads. He described the company’s Inference Engine as a production runtime that integrates functions including routing, model evaluations, batch inference, prompt caching and server-side tools for AI agents.
The company said its Inference Router, which adjusts requests across open and frontier models based on quality, latency and cost, had nearly 1,400 active customers. DigitalOcean also highlighted its launch-partner status for Kimi K3, stating that the model brought more than 400 net new customers in its first week on the platform.
Core Cloud Attachments and Capacity Plans
Management said it is seeking to build an “AI-Native Cloud” platform that connects inference, agents, data products and core infrastructure. More than half of new AI customers added year to date had attached a Core Cloud product, Srinivasan said. Among AI customers with at least $100,000 in ARR, roughly 70% had attached a Core Cloud product in the second quarter.
The company cited customers and ecosystem relationships including OpenCode, Daytona, Vercel and OpenRouter. DigitalOcean said it serves more than 20 billion tokens per day through OpenRouter, up more than 330% over the prior 60 days.
DigitalOcean launched data centers in Richmond during the first quarter and Kansas City during the second quarter, both ahead of schedule, management said. The company remains on track to open its Memphis data center in the second half of 2026. It also secured about 20 megawatts of additional capacity expected to come online in late 2027 and 2028.
Total committed capacity is now approximately 155 megawatts, with the majority expected to be online by the end of 2027. Management said the company has 15 megawatts remaining to bring online this year.
During the quarter, DigitalOcean increased list prices on several GPU fleets by approximately 30%. Steinfort said the effect on second-quarter incremental ARR was modest, while pricing actions were included in the company’s outlook for the remainder of 2026.
Profitability, Balance Sheet and Outlook
Adjusted EBITDA was $114 million, representing a 40% margin. GAAP operating income was $29 million, or a 10% margin, while adjusted operating income was $67 million, or a 24% margin. Non-GAAP diluted earnings per share were $0.45, and adjusted free cash flow totaled $61 million.
Trailing 12-month adjusted free cash flow was $175 million, equal to 17% of revenue. For the full year, DigitalOcean expects adjusted free cash flow margin of 11% to 13%.
In July, the company retired approximately $472 million of its 0% convertible senior notes due in 2030. Steinfort said the transaction reduced leverage with minimal cash use and effectively no dilution because the underlying shares had already been reflected in diluted share calculations.
- Third-quarter revenue is projected at $304 million to $307 million, representing 32% to 34% year-over-year growth.
- Third-quarter adjusted EBITDA margin is expected to be 38% to 39%.
- Third-quarter non-GAAP diluted EPS is forecast at $0.28 to $0.30.
- Full-year revenue is expected to be $1.17 billion to $1.18 billion, representing approximately 30.5% growth.
- Full-year adjusted EBITDA margin is projected at about 39%, with non-GAAP diluted EPS of $1.35 to $1.40.
Management did not provide formal 2027 guidance but reiterated greater confidence in its previous expectation for revenue growth of more than 50% next year. Steinfort said the timing of future data-center capacity additions remains an important variable in determining the company’s 2027 results.
About DigitalOcean (NYSE:DOCN)
DigitalOcean Holdings, Inc is a cloud infrastructure provider that focuses on simplicity, performance and developer experience. The company offers a range of cloud services designed to help software developers, startups and small- to medium-sized businesses deploy, manage and scale applications. Its flagship offering, Droplets, provides virtual private servers that can be configured with various CPU, memory and storage options. In addition to compute instances, DigitalOcean's platform includes managed Kubernetes, scalable object and block storage, managed databases, load balancers and networking capabilities such as Virtual Private Cloud (VPC) and Floating IPs.
Founded in 2011 and headquartered in New York City, DigitalOcean was created with the goal of making cloud computing more accessible to individual developers and smaller teams.
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