In the increasingly crowded landscape of cloud infrastructure, DigitalOcean Holdings Inc. is betting that artificial intelligence will become as embedded in software as âIntel Insideâ was to a prior era of computing.
At the heart of the companyâs ambitions is CEO Paddy Srinivasan, who sees a future where AI is integrated into every applicationâand where DigitalOcean, long synonymous with serving small and mid-sized businesses and developers, emerges as a viable alternative to hyperscalers like Amazon Web Services, Microsoft Azure, and Google Cloud Platform.
âWe are entering an era of AI everywhere, much like it was âIntel Insideâ in the PC era,â Mr. Srinivasan said in a recent interview, referring to the companyâs just-launched generation AI platform and surging demand from digital-native companies eager to embrace next-generation software. âAI is going to be inside every software application, and our customers are looking to companies and vendors like DigitalOcean to enable them to consume AI seamlessly into the fabric of their applications.â
AI as a Revenue Engine
DigitalOceanâs recent quarterly results underline its accelerating pivot to artificial intelligence. For the first quarter, the company reported 14% year-over-year revenue growth, with AI-related sales up 160% compared to a year prior. That growth rateâalbeit off a relatively small baseâreflects the appetite among its core base of smaller businesses and upstart tech firms for leveraging AI to differentiate their offerings and survive a more competitive digital economy. AI revenue is now in the âtens of millions of dollars,â Mr. Srinivasan noted, and the number of large customers spending over $100,000 has grown by 41%.
Not all news was bullish, however. DigitalOcean shares rebounded after initial declines, as the companyâs earnings-per-share guidance for the current quarter fell below the midpoint of Wall Street expectations. Investors digested a volley of information: continued double-digit growth, robust AI milestones, and the companyâs assertion that its just-launched generative AI platform could act as a future growth engine.
A particularly notable point is that DigitalOceanâs customer base is overwhelmingly international. âTwo-thirds of our revenue comes from overseas,â said Mr. Srinivasan, who cited strong performance in both Europe and Asiaâwhere the company derives nearly equal shares of its business.
A Strategic Maneuver in the GenAI Arms Race
The wave of excitement around AI infrastructure isnât limited to industry giants with vast R&D budgets. DigitalOcean has doubled down on democratizing access to AI tools, particularly open-source models that have quickly evolved following the release of Metaâs Llama 3 and the proliferation of projects like DeepSeek (sometimes colloquially called âdeep seaâ).
âWe host a lot of different AI models,â Srinivasan said, highlighting accelerating traction especially from open-source innovations. âOur open source models have seen a lot of traction, especially since Llama 3.2 came out.â
Through a private preview, over 5,000 customers have already tested DigitalOceanâs AI platform, deploying more than 8,000 AI agents, data that Mr. Srinivasan points to as evidence of pent-up demand among small digital-native enterprisesâcompanies that were âborn inâ the cloud era and now see emerging AI tools as essential for staying competitive.
Navigating Macroeconomic Uncertainty
The economic backdrop for cloud companies remains uncertain. Inflation, fluctuating IT budgets, and global instability have forced many startups and small businessesâthe very clientele DigitalOcean targetsâto become more cautious. Analysts have noted that DigitalOcean, compared with the hyperscalers, tends to be more vulnerable to volatility among less capitalized, digital-native clients.
Yet DigitalOcean sees opportunity where others sense risk. The cloud and, increasingly, artificial intelligence are âa top line driverâ for growth, Mr. Srinivasan argued, and even in a slower economy, customers must invest to stay afloat. âDuring these kinds of bumpy times, typically digital native enterprises use this as an opportunity to streamline their operations. But come out of this dislocation looking stronger with a set of products that are even more robust in terms of their ability to consume cutting edge technologies like AI, because otherwise theyâre going to go out of business.â
Compared to AWS, Google, or Azureâeach pouring billions into proprietary AI solutions and fighting for the most lucrative enterprise contractsâDigitalOcean is betting on democratization. Its pitch: to make AI tools, inference engines, and application integration affordable and accessible not just for the Fortune 500, but for the millions of businesses seeking an on-ramp to the AI revolution.
Is DigitalOcean Too Late to the AI Game?
Skeptics question whether the company, which launched its generative AI platform after larger rivals had grabbed mindshare, can catch up. But Srinivasan dismisses concern that DigitalOcean is arriving late: âWeâre just getting started with GenAI. GenAI has two phases. One is you have to train the models and the other one is you have to use the models. And we are very, very early stage in terms of companies and their ability to consume and use AI in the real world. So I donât think we are late at all. In fact, weâre super early and we have AI revenue in the tens of millions of dollars growing at 160% year over year.â
Market observers say the pace of AI adoption in the broader economy is still in its early innings, with vast swathes of applicationsâfrom e-commerce to productivity software to specialty SaaSâset to be reimagined through intelligent automation and embedded models. If that holds true, DigitalOceanâs position as a nimble, developer-friendly platform could allow it to win business from the next Stripe, Shopify, or Atlassian as those companies reinvent themselves with AI at their core.
The Stakes Ahead
As Srinivasan sees it, DigitalOceanâs opportunityâand riskâlies in serving the âdigital native enterprises for whom technology and cloud is a top line driver.â The fate of the company will rest not just on its ability to scale infrastructure or launch new features, but on nurturing a vibrant community of customers and partners who consider AI, not merely as a tool, but as the essential substrate for a new era of software.
For now, DigitalOcean is wagering that the golden age of AI will be open, widely accessible, andâcruciallyânot the sole domain of techâs biggest players. The companyâs next act will be to convince a growing cohort of small businesses worldwide to build the future with them, one intelligent application at a time.