Stifel Upgrades DigitalOcean to Buy, Raises Price Target to $160 on AI Demand

Stifel has upgraded DigitalOcean Holdings (NYSE: DOCN) to a Buy rating from Hold, significantly raising its price target on the cloud infrastructure provider to $160 from a previous $135. The brokerage cited accelerating demand for artificial intelligence infrastructure and strategic company initiatives as primary catalysts for expected revenue and earnings growth.

Rationale for the Upgrade

Stifel's optimistic outlook is rooted in several key developments. The firm highlighted DigitalOcean's recent decision to increase prices for its GPU instances, a move expected to boost the revenue generated per megawatt of data center capacity. Analysts also pointed to the company's recent debt-for-equity conversion as a positive step.

According to Stifel, this financial maneuver provides DigitalOcean with greater flexibility to finance future data center expansions while maintaining leverage below management's stated targets. This positions the company to capitalize on the surging need for computing power.

Analyst Projections and Valuation

In its report, Stifel introduced new 2028 financial forecasts that are notably above Wall Street consensus. The firm projects DigitalOcean will achieve:

Ad

• Revenue of $2.56 billion, compared to the consensus estimate of $2.45 billion.
• Earnings per share (EPS) of $3.57, versus the consensus of $2.91.

The new $160 price target is based on a valuation of approximately 45 times Stifel's newly introduced 2028 earnings estimate, reflecting confidence in the company's long-term growth trajectory.

Market Outlook and Strategy

Stifel believes DigitalOcean is well-positioned to benefit from the broader adoption of open-weight AI models, arguing that falling costs for large language model (LLM) tokens will spur greater compute usage. The brokerage also noted the company's successful expansion from its traditional base of small-business customers into larger enterprise accounts, evidenced by recent high-value commitments.

While acknowledging potential near-term margin pressure as new capacity comes online, Stifel anticipates that the expanded GPU infrastructure will ultimately generate operating margins exceeding 30%. This long-term profitability is expected to be driven by economies of scale and a more concentrated base of enterprise AI clients.