The “Magnificent Seven” moniker was coined by Wall Road in 2023 to explain a bunch of seven powerhouse know-how firms. They’re recognized for persistently producing higher returns than the remainder of the market because of their dominance in industries like shopper {hardware}, enterprise software program, cloud computing, and synthetic intelligence (AI).
However the Magnificent Seven shares are off to a tough begin to 2026, with simply three of them outperforming the S&P 500 index thus far. In truth, they’re being crushed by a tiny inventory known as DigitalOcean(NYSE: DOCN), which has doubled this yr already.
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You is perhaps questioning why I am evaluating a $10 billion minnow like DigitalOcean to an elite group of trillion-dollar giants. It is as a result of DigitalOcean technically competes with Magnificent Seven firms like Microsoft, Alphabet (Google), and Amazon within the cloud computing enterprise. It provides a rising portfolio of AI instruments and providers, that are supercharging its income development, so here is why its inventory in all probability is not carried out going larger.
Picture supply: Getty Photographs.
Betting huge on AI
Amazon Net Companies, Microsoft Azure, and Google Cloud dominate the cloud business, however they usually go after the biggest prospects with the very best spending potential. Buying small and medium-sized enterprise (SMB) prospects will not have a big effect on their income, so they do not goal them as aggressively.
DigitalOcean, alternatively, solely works with start-ups and SMBs. It provides them inexpensive and clear pricing, extremely personalised service, and a easy dashboard that makes deploying cloud instruments simple, even with out in-house technical workers. Now, the corporate is making use of the identical blueprint to assist its shoppers faucet into the ability of AI.
DigitalOcean operates knowledge facilities outfitted with superior graphics processing items (GPUs) from Nvidia and Superior Micro Gadgets, that are the first chips utilized in AI growth. It rents computing capability to its SMB prospects, permitting them to begin with only one chip and scale as wanted, which is good for small AI workloads, equivalent to working Net-based customer support chatbots.
DigitalOcean says its knowledge heart computing capability is as much as 75% cheaper to hire than the equal infrastructure from hyperscale cloud suppliers, so demand is thru the roof. In truth, the corporate raised $800 million from buyers in March to fund the development of extra knowledge facilities.
Accelerating income development because of AI
DigitalOcean’s complete income grew 15% to $901 million in 2025. However within the fourth quarter, the corporate reported $120 million in annual run-rate income (ARR) from its AI merchandise, particularly, which soared by an eye-popping 150% yr over yr.
Though DigitalOcean has over 650,000 prospects, a small group of 21,000 so-called “digital native enterprises” (DNEs) account for roughly 62% of its annualized income. These are technology-first companies that use instruments like AI to scale a lot quicker than conventional SMBs, making them extra prone to change into very excessive spenders over time.
Throughout This autumn, income from DNEs spending at the least $500,000 yearly with DigitalOcean grew by 97%, and income from these spending at the least $1 million yearly soared by a whopping 123%.
Demand for AI knowledge facilities is closely outstripping provide, so DigitalOcean will entice extra of those DNEs because it brings new infrastructure on-line. That is why administration expects the corporate’s total income development to speed up to 21% in 2026 after which to 30% in 2027.
DigitalOcean inventory may nonetheless be low cost
Regardless of the blistering positive factors in DigitalOcean inventory of late, it nonetheless appears to be like attractively valued. It is buying and selling at a price-to-sales (P/S) ratio of 11.1 as I write this, which is above its long-term common of 8.1, however the image appears to be like very totally different on a ahead foundation.
If the corporate grows consistent with administration’s expectations, it can ship round $1.4 billion in income throughout 2027, inserting its inventory at a ahead P/S ratio of simply 6.9.
DigitalOcean inventory must climb by 17% earlier than the tip of subsequent yr to ensure that its P/S ratio to commerce consistent with its long-term common of 8.1. Nevertheless it must soar by 61% to take care of its present P/S ratio of 11.1, which I believe is extra seemingly given the corporate’s important AI-driven momentum.
Due to this fact, buyers searching for cloud and AI publicity past the Magnificent Seven may need to think about including this up-and-coming powerhouse to their portfolio.
Must you purchase inventory in DigitalOcean proper now?
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Anthony Di Pizio has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Superior Micro Gadgets, Alphabet, Amazon, Apple, DigitalOcean, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Idiot has a disclosure coverage.
