DigitalOcean Holdings, Inc. (NYSE: DOCN) saw its shares jump 9.3% to $143.64 in Wednesday afternoon trading after the company projected its second-quarter remaining performance obligations (RPO) would exceed $800 million. The stock touched a high of $157.99 during the session, with over 3.28 million shares traded by 1:50 p.m. EDT, pushing the company's market capitalization to approximately $16.1 billion.
RPO Growth Signals AI Cloud Momentum
The company's RPO for the second quarter of 2025 was just $53 million, with revenue of $219 million. The latest update indicates that RPO is now at least 15.1 times higher than the year-ago period, while revenue growth is expected to accelerate to around 29%, compared to 14% growth in the same quarter last year. DigitalOcean also reported that the weighted average obligation life increased from 1.6 years to over three years, reflecting longer-term commitments from customers.
Market Context and Implications
Investors are now focusing on DigitalOcean's backlog and capacity rather than just short-term AI revenue growth. The shift to longer AI and inference deals could provide more predictable revenue streams, but longer RPO terms may also push revenue recognition further out, potentially weighing on shares if delivery or customer demand slows.
The company previously guided for second-quarter revenue between $272 million and $274 million, representing 24% to 25% growth. With the updated forecast of 29% growth, implied revenue now stands at about $283 million, nearly $9 million above the prior high end. DigitalOcean also indicated that adjusted EBITDA margin and non-GAAP EPS are expected to meet or exceed earlier high targets.
CEO Commentary and Capacity Expansion
CEO Paddy Srinivasan noted that customers are drawn to DigitalOcean's cost advantages and that "demand continues to accelerate." He highlighted the company's Inference Router, which balances price and performance between closed and open-source AI models.
During the last quarter, DigitalOcean secured several new annual customer deals worth at least nine figures each for its inference and cloud products. The company also locked in an additional 20 megawatts of data center capacity to be delivered in late 2027 and early 2028, bringing total committed capacity to about 155 megawatts. This follows the 60 megawatts of additional capacity announced in May for 2027.
Index Reclassification and Balance Sheet Moves
DigitalOcean recently moved from the Russell 2000 Index to the Russell 1000 Index during FTSE Russell's semi-annual reshuffle, which took effect on June 29. This change could increase institutional demand for the stock.
Earlier in March, the company sold 10.4 million shares at $77 each, raising approximately $773 million before expenses. Proceeds were earmarked for infrastructure expansion, repaying Term Loan A, and general corporate purposes. As of Tuesday, shares traded about 86% higher than that offer price.
Peer Comparisons
DigitalOcean's 9.3% gain outpaced Cloudflare (NYSE: NET), which rose 8.5%, and Snowflake (NYSE: SNOW), which gained 2.5%. In contrast, CoreWeave (NASDAQ: CRWV) declined 3.7%.
