[Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO highlighted solid Q2 2025 with 14% YoY revenue growth, record incremental ARR, and doubled AI/ML revenue, leading to raised full-year guidance - Total revenue grew **14% year-over-year**[2](index=2&type=chunk) - Achieved the **highest incremental ARR since Q4 of 2022**[2](index=2&type=chunk) - **AI/ML revenue more than doubled year-over-year**[2](index=2&type=chunk) - **Scalers+ revenue grew 35% year-over-year**, reaching **24% of total revenue**[2](index=2&type=chunk) - Increased full year revenue and profitability metrics guidance[2](index=2&type=chunk) [Second Quarter 2025 Financial Highlights](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Highlights) DigitalOcean reported Q2 2025 revenue of **$219 million** (14% YoY growth), net income of **$37 million** (93% YoY growth), and raised full-year guidance Q2 2025 Financial Performance (in millions) | Metric | Q2 2025 | YoY Change | | :----------------------- | :---------- | :--------- | | Revenue | $219 million | +14% | | Net Income | $37 million | +93% | | Adjusted EBITDA | $89 million | +10% | | Incremental ARR | $32 million | | - Raised full year revenue guidance to **$888 million to $892 million**[5](index=5&type=chunk) - Raised full year Adjusted EBITDA margin guidance to **39% to 40%**[5](index=5&type=chunk) [Second Quarter 2025 Operational Highlights](index=1&type=section&id=Second%20Quarter%202025%20Operational%20Highlights) Q2 2025 operational highlights include improved NDR and ARPU, strong Scalers+ growth, new products, AI collaborations, and share repurchases Key Operational Metrics (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | YoY Change | | :-------------------------------- | :---------- | :---------- | :--------- | | Net Dollar Retention Rate (NDR) | 99% | 97% | +2 ppts | | Average Revenue Per Customer (ARPU) | $111.70 | | +12% | | Scalers+ Customer Growth | +23% | | | | Scalers+ Revenue Growth | +35% | | | - Released **more than 60 new products and features** during the quarter[6](index=6&type=chunk) - Announced a collaboration with AMD, providing customers access to **AMD Instinct™ GPUs** for AI workloads and the **AMD Developer Cloud**[6](index=6&type=chunk)[7](index=7&type=chunk) - Announced the General Availability of the **DigitalOcean Gradient™ AI Platform**, enabling developers to combine data with foundation models for customized Generative AI agents[13](index=13&type=chunk) - Repurchased **0.7 million shares** during the quarter, with cumulative repurchases of **$1.6 billion** and **34.8 million shares** since IPO through June 30, 2025[13](index=13&type=chunk) [Financial Outlook](index=2&type=section&id=Financial%20Outlook) [Third Quarter 2025 Guidance](index=2&type=section&id=Third%20Quarter%202025%20Guidance) DigitalOcean projects Q3 2025 total revenue of **$226-$227 million**, Adjusted EBITDA margin of **39%-40%**, and non-GAAP diluted EPS of **$0.45-$0.50** Q3 2025 Financial Guidance (in millions, except per share amounts) | Metric | Guidance Range | | :-------------------------------- | :--------------- | | Total Revenue | $226 to $227 million | | Adjusted EBITDA Margin | 39% to 40% | | Non-GAAP Diluted Net Income Per Share | $0.45 to $0.50 | | Fully Diluted Weighted Average Shares Outstanding | 102 to 103 million | [Full Year 2025 Guidance](index=2&type=section&id=Full%20Year%202025%20Guidance) Full year 2025 guidance includes total revenue of **$888-$892 million**, Adjusted EBITDA margin of **39%-40%**, and non-GAAP diluted EPS of **$2.05-$2.10** Full Year 2025 Financial Guidance (in millions, except per share amounts) | Metric | Guidance Range | | :-------------------------------- | :--------------- | | Total Revenue | $888 to $892 million | | Adjusted EBITDA Margin | 39% to 40% | | Adjusted Free Cash Flow Margin | 17% to 19% of revenue | | Non-GAAP Diluted Net Income Per Share | $2.05 to $2.10 | | Fully Diluted Weighted Average Shares Outstanding | 103 to 104 million | [Company Information & Disclosures](index=2&type=section&id=Company%20Information%20%26%20Disclosures) [About DigitalOcean](index=2&type=section&id=About%20DigitalOcean) DigitalOcean provides a scalable cloud platform, democratizing cloud and AI for digital native enterprises, serving over **600,000 customers** - DigitalOcean is a scalable cloud platform democratizing cloud and AI for **digital native enterprises** globally[15](index=15&type=chunk) - Its mission is to simplify cloud and AI, empowering builders to create impactful software[15](index=15&type=chunk) - Over **600,000 customers** rely on DigitalOcean for cloud, AI, and ML infrastructure[15](index=15&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This release contains forward-looking statements subject to various known and unknown risks that could cause actual results to differ materially - This release contains forward-looking statements subject to known and unknown risks, uncertainties, and factors that may cause actual results to differ materially[16](index=16&type=chunk) - Key risks include financial fluctuations, profitability, customer retention, market development, AI/ML offering success, technology adaptation, cost control, security breaches, and competitive markets[16](index=16&type=chunk) - The company operates in a competitive, rapidly changing environment and assumes no obligation to update forward-looking statements after this release date[18](index=18&type=chunk) [Non-GAAP Financial Measures](index=4&type=section&id=Non-GAAP%20Financial%20Measures) [About Non-GAAP Financial Measures](index=4&type=section&id=About%20Non-GAAP%20Financial%20Measures) DigitalOcean provides non-GAAP financial measures as supplemental information, acknowledging their limitations and providing GAAP reconciliations - Non-GAAP financial measures, including Adjusted EBITDA, non-GAAP net income, and adjusted free cash flow, supplement GAAP financial statements[19](index=19&type=chunk) - These measures have analytical limitations and should not be considered in isolation or as a substitute for GAAP financial information[19](index=19&type=chunk) - Reconciliations of each non-GAAP financial measure to the most directly comparable GAAP measure are provided[19](index=19&type=chunk) [Adjusted EBITDA and Adjusted EBITDA Margin Definition](index=5&type=section&id=Adjusted%20EBITDA%20and%20Adjusted%20EBITDA%20Margin%20Definition) Adjusted EBITDA is net income adjusted for non-operating and non-cash items; its margin, as a percentage of revenue, offers supplemental operating performance insights - Adjusted EBITDA is net income attributable to common stockholders, adjusted for various non-operating and non-cash items including depreciation, stock-based compensation, and interest expense[20](index=20&type=chunk) - Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of revenue[20](index=20&type=chunk) - This metric provides supplemental information on operating performance and facilitates internal comparisons by excluding non-indicative business items[20](index=20&type=chunk) [Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share Definition](index=5&type=section&id=Non-GAAP%20Net%20Income%20and%20Non-GAAP%20Diluted%20Net%20Income%20Per%20Share%20Definition) Non-GAAP net income excludes specific non-cash and non-recurring items from GAAP net income; diluted EPS is calculated accordingly, enhancing comparability - Non-GAAP net income is net income attributable to common stockholders, excluding stock-based compensation, acquisition-related compensation, amortization of acquired intangibles, and other non-recurring items from GAAP net income[22](index=22&type=chunk) - Non-GAAP diluted net income per share is non-GAAP net income divided by weighted-average diluted shares outstanding[22](index=22&type=chunk) - This metric enhances consistency and comparability by removing the effects of unusual or non-recurring items[23](index=23&type=chunk) [Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin Definition](index=5&type=section&id=Adjusted%20Free%20Cash%20Flow%20and%20Adjusted%20Free%20Cash%20Flow%20Margin%20Definition) Adjusted free cash flow is operating cash flow minus capital expenditures and specific cash costs; its margin indicates cash from core operations for strategic initiatives - Adjusted free cash flow is net cash from operating activities minus capital expenditures and specific restructuring/acquisition-related cash costs[24](index=24&type=chunk) - Adjusted free cash flow margin is calculated as adjusted free cash flow divided by total revenue[24](index=24&type=chunk) - This metric indicates liquidity for strategic initiatives but does not reflect future contractual commitments or total cash balance changes[25](index=25&type=chunk) [Key Business Metrics](index=5&type=section&id=Key%20Business%20Metrics) [Customers](index=5&type=section&id=Customers) Customer count is the average monthly customer base, categorized by monthly spend and platform tenure, with higher-spending groups defined - Customer count is the average number of customers as of the last day of each month in the most recent quarter[27](index=27&type=chunk) Customer Categories by Monthly Spend | Category | Monthly Spend | Platform Tenure | | :--------- | :-------------- | :---------------- | | Testers | ≤ $50 | ≤ 3 months | | Learners | ≤ $50 | > 3 months | | Builders | > $50 to ≤ $500 | Any | | Scalers | > $500 to ≤ $8,333 | Any | | Scalers+ | > $8,333 | Any | - Builders, Scalers, and Scalers+ customers are collectively referred to as **Higher Spend Customers**[28](index=28&type=chunk) [ARPU (Average Revenue Per Customer)](index=6&type=section&id=ARPU%20(Average%20Revenue%20Per%20Customer)) ARPU is calculated monthly as total revenue from specific customer categories divided by their count; quarterly/annual ARPU is a weighted average - ARPU is calculated monthly as total revenue from Learners, Builders, Scalers, and Scalers+ divided by their total customer count[29](index=29&type=chunk) - Quarterly or annual ARPU is determined as the weighted average monthly ARPU over the respective period[29](index=29&type=chunk) [ARR (Annual Run-Rate Revenue)](index=6&type=section&id=ARR%20(Annual%20Run-Rate%20Revenue)) ARR is calculated by annualizing the most recent quarter's total revenue, encompassing all customer categories - ARR is calculated by multiplying the revenue for the most recent quarter by four[30](index=30&type=chunk) - ARR calculations include total revenue from all customer categories: Testers, Learners, Builders, Scalers, and Scalers+[30](index=30&type=chunk) [Net Dollar Retention Rate](index=6&type=section&id=Net%20Dollar%20Retention%20Rate) Net dollar retention rate is a monthly metric comparing current revenue from a 12-month-old customer cohort to their prior revenue, accounting for expansion and re-engaged customers - Net dollar retention rate is calculated monthly by comparing current revenue from a 12-month-prior customer cohort, including expansion and net of contraction/attrition[31](index=31&type=chunk) - The calculation also includes revenue from re-engaged customers who previously generated revenue but not in the 12-month prior period[31](index=31&type=chunk) [Remaining Performance Obligation (RPO)](index=6&type=section&id=Remaining%20Performance%20Obligation%20(RPO)) RPO represents future service commitments in customer contracts not yet recognized as revenue, excluding short-term contracts, and is not a direct indicator of future revenue growth - Remaining Performance Obligation (RPO) represents commitments in customer contracts for future services not yet recognized as revenue[32](index=32&type=chunk) - The company excludes contracts with an original expected term of one year or less from RPO[32](index=32&type=chunk) - RPO is not necessarily indicative of future revenue growth due to consumption timing, usage beyond capacity, and transitions to commitment-based agreements[32](index=32&type=chunk) [Condensed Consolidated Financial Statements](index=7&type=section&id=Condensed%20Consolidated%20Financial%20Statements) [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets increased to **$1.72 billion**, liabilities to **$1.90 billion**, and stockholders' deficit improved to **$(175.2) million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :-------------- | :---------------- | :------- | | Total Assets | $1,719,808 | $1,639,015 | +$80,793 | | Total Liabilities | $1,895,025 | $1,841,970 | +$53,055 | | Total Stockholders' Deficit | $(175,217) | $(202,955) | +$27,738 | | Cash and cash equivalents | $387,745 | $428,446 | -$40,701 | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 revenue reached **$218.7 million** (14% YoY growth), with net income increasing **93%** to **$37.0 million** and diluted EPS at **$0.39** Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $218,700 | $192,476 | $429,403 | $377,206 | | Gross profit | $130,945 | $114,148 | $260,389 | $223,296 | | Income from operations | $35,619 | $22,328 | $73,261 | $33,866 | | Net income attributable to common stockholders | $37,027 | $19,138 | $75,231 | $33,277 | | Diluted net income per share | $0.39 | $0.20 | $0.77 | $0.35 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For H1 2025, operating cash flow increased to **$156.5 million**, while investing activities used **$100.4 million** and financing activities used **$96.9 million**, driven by capital expenditures and share repurchases Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $156,537 | $138,033 | | Net cash (used in) provided by investing activities | $(100,407) | $12,095 | | Net cash used in financing activities | $(96,876) | $(24,193) | | (Decrease) increase in cash, cash equivalents and restricted cash | $(40,701) | $125,874 | - Capital expenditures for property and equipment increased to **$95.16 million** for the six months ended June 30, 2025, from **$75.53 million** in the prior year[40](index=40&type=chunk) - Repurchase and retirement of common stock increased significantly to **$79.20 million** for the six months ended June 30, 2025, from **$18.18 million** in the prior year[40](index=40&type=chunk) [Reconciliation of GAAP to Non-GAAP Data](index=10&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Data) [Adjusted EBITDA and Adjusted EBITDA Margin Reconciliation](index=10&type=section&id=Adjusted%20EBITDA%20and%20Adjusted%20EBITDA%20Margin%20Reconciliation) Q2 2025 GAAP net income of **$37.0 million** adjusted to **$89.5 million** Adjusted EBITDA (**41% margin**), with H1 2025 Adjusted EBITDA at **$175.7 million** (**41% margin**) Adjusted EBITDA and Adjusted EBITDA Margin Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net income attributable to common stockholders | $37,027 | $19,138 | $75,231 | $33,277 | | Adjustments (e.g., Depreciation, Stock-based comp) | $52,438 | $62,448 | $100,518 | $122,633 | | Adjusted EBITDA | $89,465 | $81,586 | $175,749 | $155,910 | | Adjusted EBITDA margin | 41% | 42% | 41% | 41% | [Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share Reconciliation](index=11&type=section&id=Non-GAAP%20Net%20Income%20and%20Non-GAAP%20Diluted%20Net%20Income%20Per%20Share%20Reconciliation) Q2 2025 GAAP net income of **$37.0 million** adjusted to **$57.8 million** Non-GAAP Net income, with diluted EPS at **$0.59**; H1 2025 Non-GAAP Net income was **$113.3 million** Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share Reconciliation (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net income attributable to common stockholders | $37,027 | $19,138 | $75,231 | $33,277 | | Non-GAAP Net income | $57,815 | $47,605 | $113,264 | $90,352 | | Non-GAAP Net income per share, diluted | $0.59 | $0.48 | $1.15 | $0.91 | - A **16% tax rate** was applied for non-GAAP income tax adjustments in fiscal years 2025 and 2024, reflecting a reasonable long-term effective tax rate[45](index=45&type=chunk) [Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin Reconciliation](index=12&type=section&id=Adjusted%20Free%20Cash%20Flow%20and%20Adjusted%20Free%20Cash%20Flow%20Margin%20Reconciliation) Q2 2025 GAAP operating cash flow of **$92.4 million** resulted in **$57.0 million** Adjusted free cash flow (**26% margin**), with H1 2025 Adjusted free cash flow at **$56.2 million** (**13% margin**) Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net cash provided by operating activities | $92,447 | $71,340 | $156,537 | $138,033 | | Adjusted free cash flow | $57,015 | $37,429 | $56,194 | $71,772 | | Adjusted free cash flow margin | 26% | 19% | 13% | 19% |

Core Insights - DigitalOcean Holdings, Inc. (DOCN) is expected to report quarterly earnings of $0.47 per share, reflecting a decline of 2.1% year over year, while revenues are forecasted to be $216.62 million, indicating a 12.5% increase compared to the previous year [1] Earnings Estimates - Over the last 30 days, the consensus EPS estimate has been revised downward by 1.8%, indicating a collective reassessment by analysts [2] - Changes in earnings estimates are crucial for predicting investor reactions, with empirical studies showing a strong correlation between earnings estimate revisions and short-term stock price performance [3] Key Metrics Projections - Analysts predict that 'Total Customers' will reach 672,811, up from 638,000 in the same quarter last year [5] - The 'Net Dollar Retention Rate' is estimated at 100.0%, an increase from 97.0% year over year [5] - The 'Average Revenue Per Customer (ARPU)' is expected to be $109.66, compared to $99.45 in the previous year [5] Stock Performance - Over the past month, DigitalOcean shares have declined by 11.9%, while the Zacks S&P 500 composite has increased by 0.6% [6] - Based on its Zacks Rank 3 (Hold), DOCN is anticipated to perform in line with the overall market in the near term [6]

Market Overview - The S&P 500 index has historically shown an upward trend in August, with an average return of 0.6% since 1928, indicating a favorable environment for investors [1]. Chipotle Mexican Grill (CMG) - Chipotle reported a 3% increase in revenue to $3.1 billion for Q2, falling short of the expected 5% growth, while non-GAAP net income decreased by 3% to $0.33 per diluted share [5]. - The company experienced a 4% decline in same-store sales, attributed to decreased consumer traffic, leading to a 9% drop in stock price, reaching a 52-week low [6][7]. - Analysts have a median target price of $59.50 per share for Chipotle, suggesting a potential upside of 38% from the current price of $43 [8]. - Despite recent challenges, the market's reaction may be an overreaction, and there are indications of a rebound in consumer sentiment and traffic due to summer marketing initiatives [10]. - Wall Street anticipates adjusted earnings growth of 16% annually through 2026, with the current valuation at 38 times adjusted earnings appearing reasonable [11]. DigitalOcean (DOCN) - DigitalOcean reported Q1 revenue growth of 14% to $211 million, exceeding expectations, with non-GAAP net income rising by 30% to $0.56 per diluted share [12]. - The company targets individual developers and small businesses, differentiating itself from larger cloud providers by offering simplified cloud computing solutions [13]. - DigitalOcean is capitalizing on the growing demand for AI, having introduced a generative AI development platform and an AI-powered copilot for website issue resolution [14]. - Analysts expect earnings to remain unchanged through 2026, but there is potential for underestimation of future growth, especially with cloud-services spending projected to increase by 22% annually [15][16]. - The stock is currently trading at 13 times adjusted earnings, presenting an attractive opportunity for investors [16].

Which of these cloud-based AI companies has a brighter future? CoreWeave (CRWV 3.75%) and DigitalOcean (DOCN -0.86%) both help companies process artificial (AI) tasks with their cloud-based graphics processing units (GPUs). CoreWeave, previously a cryptocurrency mining company, mainly serves larger companies. DigitalOcean splits its servers into "droplets" for smaller businesses and developers. Each should be in a good position to profit from the explosive growth of the AI market. However, investors are cle ...

Group 1: C3.ai Overview - C3.ai has experienced a significant decline of almost 22% in its stock price in 2025 [1] - Despite healthy growth driven by increased adoption of its AI software solutions, market confidence in C3.ai is low, with only four out of 17 analysts recommending a buy [2] - The company is not yet profitable, with a non-GAAP net loss that contracted by just 13% while revenue grew by 25% in the fiscal year ending April 30, 2025 [4] Group 2: DigitalOcean Overview - DigitalOcean is positioned to benefit from the growing demand for AI software, offering cloud computing platforms primarily for small companies and early-stage developers [6] - The company provides a range of Nvidia and AMD GPUs, allowing clients to save up to 75% in costs compared to hyperscalers [8] - DigitalOcean's average revenue per user increased by 14% year over year in Q1 2025, indicating strong customer spending [10] Group 3: Market Potential and Growth Projections - The GPU-as-a-service market is projected to grow from approximately $4.3 billion in 2024 to nearly $50 billion by 2032, presenting significant opportunities for DigitalOcean [10] - DigitalOcean expects to grow its customer base at an annualized rate of 13% and anticipates existing customers will increase spending by 5% to 7% annually [11] - Analysts have set a 12-month price target of $38 for DigitalOcean, which is 32% higher than its current level, with a potential market cap increase from $2.60 billion to $3.5 billion [13] Group 4: Valuation and Investment Outlook - DigitalOcean is trading at 15 times forward earnings, which is about half the average forward earnings multiple of the Nasdaq-100 index [14] - The anticipated acceleration in earnings growth could lead to a higher valuation multiple for DigitalOcean, making it an attractive investment opportunity [14]

Company Overview - SoundHound AI is a leading developer of conversational AI software, experiencing rapid revenue growth with a stock increase of 835% in 2024 after Nvidia's investment, although Nvidia has since divested its stake [1] - DigitalOcean is an emerging AI company focused on providing cloud computing services tailored for small and mid-sized businesses (SMBs), featuring a growing portfolio of AI services [2] SoundHound AI - SoundHound AI has secured a notable customer base, including automotive companies like Hyundai and Kia, and restaurant chains such as Chipotle and Papa John's, utilizing its conversational AI software to enhance customer experiences [4] - The company’s Chat AI product is being integrated into vehicles to assist drivers with various features, while its software is also used by restaurants to autonomously take orders and assist employees [5][6] - In 2024, SoundHound generated $84.7 million in revenue, marking an 85% increase from the previous year, with projections of $167 million in 2025, indicating a growth rate of 97% [7] - SoundHound has an order backlog exceeding $1.2 billion, expected to convert into revenue over the next six years, supporting future growth [7] - Despite revenue growth, SoundHound reported a non-GAAP loss of $69.1 million in 2024 and an additional $22.3 million in Q1 2025, with $246 million in cash on hand, raising concerns about sustainability [8][9] DigitalOcean - DigitalOcean operates in a cloud computing market dominated by large tech companies, focusing on the underserved SMB segment with clear pricing and customer service [10][11] - The company provides access to GPU resources, allowing SMBs to deploy AI applications efficiently, including a new platform called GenAI for creating custom AI agents [12][13] - DigitalOcean anticipates $880 million in total revenue for 2025, reflecting a 13% growth, while its AI revenue surged by 160% in Q1 2025 [14] - The company reported a GAAP net income of $84.5 million in 2024, a 335% increase from the previous year, with Q1 2025 net income rising by 171% to $38.2 million [15] Valuation Comparison - SoundHound AI's stock trades at a high price-to-sales (P/S) ratio of 41.4, significantly higher than DigitalOcean's modest P/S ratio of 3.5, indicating a more attractive valuation for DigitalOcean [16] - DigitalOcean's price-to-earnings (P/E) ratio stands at 26.2, making it cheaper compared to larger cloud providers, while SoundHound's lack of profitability limits its valuation metrics [18] - The high valuation of SoundHound may restrict its upside potential, especially given its ongoing losses, while DigitalOcean presents a more appealing investment opportunity due to its profitability and growing AI revenue [20]

Core Industry Insights - Cloud computing is currently a highly sought-after sector, with hyperscalers significantly increasing their demand for computing capacity [1] - Companies like CoreWeave (NASDAQ: CRWV) are benefiting from the strong growth trends in the cloud computing market [1]

Company Overview - SoundHound AI is a leader in conversational AI, experiencing significant revenue growth but facing substantial cash burn to support this expansion [1][10] - DigitalOcean focuses on providing cloud computing services to small and mid-sized businesses (SMBs) and is expanding its AI service offerings [3][5] Financial Performance - SoundHound AI reported $29.1 million in revenue for Q1 2025, a 151% increase year-over-year, but incurred a non-GAAP loss of $22.3 million, a 10% increase from the previous year [10][11] - DigitalOcean generated $210.7 million in revenue during the same quarter, a 14% increase year-over-year, with AI revenue soaring by 160% [13][14] Profitability - SoundHound AI is currently unprofitable, with a need to prioritize profitability to avoid future cash injections that could dilute shareholder value [12] - DigitalOcean is profitable, with a GAAP net income of $38.2 million, a 171% increase, and a non-GAAP net income of $55.4 million, a 30% increase [14] Valuation Metrics - SoundHound AI has a high price-to-sales (P/S) ratio of 36.6, while DigitalOcean's P/S ratio is significantly lower at 3.5 [15] - If SoundHound's P/S ratio were to align with Nvidia's at 23.6, its market cap would drop to $2.7 billion, closer to DigitalOcean's valuation [18] Market Outlook - DigitalOcean's AI revenue growth and profitability suggest strong upside potential, while SoundHound may face challenges ahead [20]

Core Viewpoint - DigitalOcean's stock has seen a significant decline of approximately 40% since mid-February despite strong quarterly performance, presenting a potential buying opportunity for investors [1][3]. Group 1: Company Performance - DigitalOcean reported a revenue growth of 14% year-over-year in Q1 2025, an improvement of 2 percentage points from Q1 2024 [5]. - Adjusted earnings increased by 30% year-over-year, indicating robust financial health [5]. - The company's annual recurring revenue (ARR) from AI services surged by 160% year-over-year in Q1 2025, driven by the introduction of new AI-focused services [9]. Group 2: AI Adoption and Services - The demand for DigitalOcean's cloud-based AI services has significantly increased, attributed to the growing adoption of AI technologies [2][6]. - DigitalOcean's GenAI Platform, launched in January 2025, has attracted over 5,000 customers who have built more than 8,000 AI agents [8][9]. - The company has released 50 new features in the last quarter, a fivefold increase from the previous year, enhancing its product offerings [9]. Group 3: Market Potential - The demand for AI agents is projected to grow at an annual rate of 46% through 2030, with cloud-based AI services expected to increase at a compound annual growth rate of 30% over the next eight years [10]. - DigitalOcean estimates its total addressable market (TAM) to be around $140 billion, suggesting significant growth potential [10]. Group 4: Valuation and Investment Opportunity - DigitalOcean is currently trading at a price-to-earnings (P/E) ratio of 26, with a forward P/E ratio of 15, indicating an attractive valuation for growth investors [11]. - The company's earnings forecast for 2025 is between $1.85 and $1.95 per share, which may not reflect substantial growth due to increased capital expenditures [12]. - Average revenue per customer has risen by 14% year-over-year, with potential for further increases as new AI services are added [13].

Core Viewpoint - Investors in DigitalOcean Holdings, Inc. (DOCN) should closely monitor the stock due to significant movements in the options market, particularly the July 18, 2025 $17.5 Call which has high implied volatility [1] Company Analysis - DigitalOcean Holdings is currently ranked 3 (Hold) in the Internet – Software industry, which is in the top 20% of the Zacks Industry Rank [3] - Over the last 60 days, two analysts have raised their earnings estimates for the current quarter, while three have lowered theirs, resulting in a decrease of the Zacks Consensus Estimate from 48 cents per share to 47 cents [3] Options Market Insights - The high implied volatility suggests that options traders are anticipating a significant price movement for DigitalOcean Holdings shares, indicating potential upcoming events that could lead to a rally or sell-off [2][4] - Seasoned options traders often seek to sell premium on options with high implied volatility, aiming to benefit from the decay of the option's value if the underlying stock does not move as much as expected by expiration [4]