The Best-Kept Secret in AI Infrastructure? Hint: It’s Not Nvidia

DigitalOcean (NASDAQ: DOCN) just pulled off something few small-cap tech companies have achieved in this market: record revenue, soaring profits, and a guidance hike that caught Wall Street flat-footed. The stock popped by almost a third after Q2 results, and yet, shares remain roughly 12% below where they started the year.

That gap between operational performance and valuation might be the opportunity hiding in plain sight.

Key Points

• DigitalOcean focuses on small and mid-sized businesses, a massive but often overlooked segment.

• The new GradientAI platform and fractional GPU capacity make artificial intelligence accessible to SMBs, with AI revenue more than doubling year-over-year.

• Despite record Q2 revenue and 93% net income growth, the stock trades at just under 24x earnings.

Cloud Built for Underserved Customers

Unlike Amazon Web Services or Microsoft Azure, DigitalOcean isn’t chasing the Fortune 500. Its sweet spot is small and mid-sized businesses, a segment often ignored by hyperscalers because the contracts aren’t as large. But there are 33 million SMBs in the U.S. alone, and 400 million worldwide.

Even capturing a sliver of that global base translates into billions in potential revenue. SMBs want predictable pricing, simple dashboards, and support that doesn’t require an enterprise-level IT team, all areas where DigitalOcean has carved out a moat.

This under-the-radar positioning might well prove powerful as AI adoption trickles down from the big players to the mom-and-pop level.

AI Angle Most Investors Miss

DigitalOcean’s AI strategy isn’t about competing head-to-head with Nvidia or Google. Instead, it’s about making cutting-edge tools accessible to the long tail of businesses that want to experiment with AI but can’t afford an enterprise build-out.

A key weapon is GradientAI, its recently launched cloud workspace that plugs directly into large language models from Anthropic, OpenAI, and Meta. Importantly, DigitalOcean allows customers to rent fractional GPU capacity, meaning a business can deploy a chatbot or run a lightweight AI model with the cost equivalent of leasing just one chip.

That kind of flexibility is almost unheard of in cloud AI infrastructure. Between Q1 and Q2, the number of AI agents created on GradientAI doubled to more than 14,000. That’s proof DigitalOcean is solving a real pain point for the underdog innovators.

Better yet, AI revenue more than doubled year-over-year last quarter. While that’s off a small base, it shows DigitalOcean is becoming a gateway for SMB AI adoption, not just a generic cloud host.

Financials Transforming

Q2 revenue hit almost $220 million, slightly above management’s forecast. But the story isn’t just growth it’s the quality of growth. Operating expenses rose by under 4%, which helped net income surge 93% year-over-year.

This margin discipline matters because of the balance sheet. DigitalOcean is carrying $1.5 billion in long-term debt, but rising profitability reduces refinancing risk and frees up capital to reinvest in AI initiatives.

And while most investors focus on revenue multiples, there’s an overlooked valuation angle in that DigitalOcean trades at just under 24 times trailing earnings. That’s unusual for a tech company growing faster than the broader market.

In other words, this is one of the rare tech names where both growth and valuation line up in investors’ favor.

What Wall Street Might Have Overlooked This

The consensus price target of $41.60, with the most bullish forecast at $55 implying massive percentage gains.

But here’s the alpha that consensus may not capture: SMB cloud adoption is still early innings. Research from IDC estimates that while enterprise cloud spend is maturing, SMB cloud spend will grow at a compound annual growth rate above 20% through 2030.

Once a business builds a small AI project on GradientAI, odds are high they’ll expand to other DigitalOcean services, raising lifetime value per customer.

Unlike hyperscalers, DigitalOcean doesn’t have to spend tens of billions annually on new data centers. Its asset-light strategy makes each dollar of growth far more profitable.

What Now?

DigitalOcean has gone from being an overlooked small-cap to a quietly profitable cloud enabler for businesses the giants don’t serve. With AI becoming more accessible, the company is positioned to capture the next wave of demand at the ground floor, not by chasing megadeals, but by empowering millions of smaller players.

At today’s valuation, the market still prices DigitalOcean like a cloud also-ran. But if its AI-driven SMB strategy continues to scale, investors may look back at this period as the last time shares traded at “cheap tech” multiples.

For those with a five-year horizon, DigitalOcean could turn out to be one of the more under-appreciated growth stories in cloud computing.