Why DigitalOcean Stock Rallied 16% This Week

Shares of DigitalOcean (NYSE: DOCN) , a provider of simplified cloud computing, had risen 16% this week as of 1 p.m. ET on Friday, according to data provided by S&P Global Market Intelligence . Since reporting earnings on Aug. 8, DigitalOcean's stock has rallied 29%.

The company thoroughly beat expectations with its second-quarter earnings , and it highlighted a handful of developments in the artificial intelligence (AI) space that have the market continuing to push the company's price higher.

DigitalOcean: AI for the SMEs, too

DigitalOcean's cloud computing solutions are designed with small and medium-size enterprises (SMEs) in mind. These clients make up the vast majority of the company's customer base. They flock to DigitalOcean instead of the hyperscalers because of the simplicity, affordability, premium support, and reliability it offers.

The company's services are ideal for SMEs (including a hands-off managed hosting solution), but they aren't a stripped-down version of what its mega peers offer.

In fact, the company is investing heavily in bleeding-edge technologies amid the AI revolution. It acquired Paperspace, a cloud platform for building and scaling AI applications, for $111 million in 2023. Bringing its AI capabilities in-house, DigitalOcean developed 24 new features in the second quarter, doubling its new product additions from the previous six months.

The company added Bratin Saha as its new chief product and technology officer in June. Saha previously was vice president and general manager for AI and machine learning (ML) at Amazon Web Services. Pairing Saha's AI and ML expertise with DigitalOcean's recent acquisition, the company saw AI-related annual recurring revenue spike over 200% in the second quarter.

CloudZero, a specialist in cost-efficient cloud software, estimates that only 44% of SMEs currently use cloud infrastructure or hosting, so DigitalOcean still has plenty of growth ahead.

Josh Kohn-Lindquist has positions in DigitalOcean. The Motley Fool has positions in and recommends DigitalOcean. The Motley Fool has a disclosure policy .