What Happened?
Shares of cloud computing provider DigitalOcean (NYSE: DOCN) jumped 5.2% in the morning session after Morgan Stanley upgraded the stock's rating from Neutral to Buy and assigned a price target of $41. Citing the reason for the upgrade, the firm called out Digital Ocean's underappreciated AI opportunity.
After the initial pop the shares cooled down to $35.59, up 3.9% from previous close.
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What The Market Is Telling Us
DigitalOcean’s shares are very volatile and have had 21 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 2 months ago when the stock dropped 16.1% on the news that the company reported third-quarter earnings results and provided underwhelming guidance with sales outlook for the next quarter roughly in line, while its EPS forecast missed. Also, sales came in roughly in line during the quarter, unexciting, and not enough for the market. Given the company's recent AI bets and potential in the SMB space, expectations were likely high, heading into earnings. However, the company provided some encouraging updates, announcing the early availability of its first GenAI Platform. Overall, this quarter was mixed, with the guidance weighing on shares.
DigitalOcean is up 3.9% since the beginning of the year, but at $35.59 per share, it is still trading 19.1% below its 52-week high of $44 from October 2024. Investors who bought $1,000 worth of DigitalOcean’s shares at the IPO in March 2021 would now be looking at an investment worth $837.41.
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