Why Is DigitalOcean (DOCN) Stock Soaring Today

Petr Huřťák /
2023/07/06 3:07 pm EDT

What Happened:

Shares of cloud computing provider DigitalOcean (NYSE: DOCN) jumped 5.46% in the afternoon session after it announced the acquisition of Paperspace, a provider of cloud infrastructure for GPU-powered applications. According to the company's press statement, integrating Paperspace's technology into DigitalOcean's platform will expand its offerings and allow customers to test, develop, and deploy artificial intelligence (AI) and machine learning (ML) applications more easily. The acquisition is expected to benefit both companies' customers, with Paperspace customers gaining access to a broader cloud services platform while DigitalOcean customers can leverage GPUs alongside their CPU workloads. The acquisition, valued at $111 million in cash, is expected to have a positive impact on DigitalOcean's revenue growth in 2024 and beyond. Yancey Spruill, CEO of DigitalOcean, added, "This acquisition marks a significant milestone in DigitalOcean's journey to revolutionize how SMBs and startups harness the power of the cloud and AI/ML for their applications and businesses. The combined offerings allow customers to focus more on building applications and growing their businesses and less on the infrastructure powering them."

What is the market telling us:

DigitalOcean's shares are very volatile and over the last year have had 50 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was about 2 months ago, when the stock dropped 6.23% on the news that the company reported first-quarter results that narrowly beat analysts' revenue estimates. However, annual recurring revenue (ARR), earnings per share, and free cash flow missed, while gross margin experienced a significant decline. On a brighter note, revenue guidance for the next quarter came in roughly inline with analysts' estimates, and the full year revenue guidance came in above Consensus. Overall, it was a mixed quarter for the company, taking into account the high expectations established for fast-growing SaaS stocks.

DigitalOcean is up 74.1% since the beginning of the year, but at $44.55 per share it is still trading 15.4% below its 52-week high of $52.67 from August 2022. Investors who bought $1,000 worth of DigitalOcean's shares at the IPO in March 2021 would now be looking at an investment worth $1,050.

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