Why DigitalOcean Stock Is Riding a Big Rally Today

Shares Digital Ocean Resources (DOCUMENT 11.71%) were up 14.2% as of 2:40 p.m. ET today, according to data from S&P Global Market Intelligence. The gain came after the company’s second-quarter earnings report on Thursday after the close. Not only did the small tech hardware beat estimates, it also reminded investors how resilient its business is.

The DigitalOcean wave continues

DigitalOcean’s business is simple. It offers cloud computing solutions alongside many other providers. But it differs from most of those other companies in that it specializes in meeting the needs of smaller customers who may want to experiment with the technology on a small scale first, then expand their cloud computing operations as their needs grow.

The differentiated model is clearly working. Last quarter revenue of $192.5 million rose 13% year over year despite economic headwinds, beating estimates of about $188.6 million. Earnings per share of $0.48 beat the consensus of $0.39, improving from the prior-year estimate of $0.44 per share.

The foreseeable future also looks promising. The company raised the low end of its full-year revenue guidance from a range of $760 million to $775 million to a new range of $770 million to $775 million. Its previous earnings per share guidance of $1.60 to $1.67 was revised to a range of $1.60 to $1.70. The analysts collectively model revenue growth of 11.1% in 2024 to just under $770 million and expect earnings to rise from last year’s $1.59 per share to $1.64 this year.

DigitalOcean just proved that there is reason to expect such growth, although analyst forecasts may still underestimate what lies ahead.

A place and a reason to go higher

But is it worth buying these shares after such a large daily increase?

Normally, such a move would be difficult to follow, simply because it invites profit taking once the euphoria wears off. And we could see bearish resistance early next week once the dust settles.

But overall, there’s still a lot more upside than downside. Shares are much closer to their October lows than their 2021 highs, and they’re also lower than their February highs. There’s room — and now reason — for shares to move higher.

This could help: Forecasts from market research firm Imarc Group show that the global cloud computing sector, which serves small and medium-sized businesses in particular, is expected to grow at an annual rate of 14.9% through 2032.