Why DigitalOcean stock is riding a big bullish wave today

Actions of DigitalOcean Holdings (Doc 11.92%) were up 14.2% as of 2:40 p.m. ET today, according to figures from S&P Global Market Intelligence. The increase comes after Thursday’s after-hours release of the company’s second-quarter results. Not only did the small tech outfit top the estimate, but it also reminded investors just how resilient its business is.

The DigitalOcean wave is still moving

DigitalOcean’s business is not complicated. The company offers cloud computing solutions, along with a host of other providers. However, it differs from most other outfits in that it specializes in serving the needs of smaller customers who may want to first experiment with the technology on a small scale and then scale their cloud computing operation as the need grows.

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

The foreseeable future also looks bright. The company raised the lower end of its full-year revenue estimates from a range of $760 million to $775 million to a new range of $770 million to $775 million. Its previous EPS outlook of $1.60 to $1.67 was revised to a range of $1.60 to $1.70. Analysts collectively model 11.1% growth in 2024 to just under $770 million and still expect earnings to improve from $1.59 a share last year to $1.64 this year this.

DigitalOcean has just proven that there are good reasons to expect such growth, although analysts’ outlooks may still understate what’s actually in store.

Room and reason to move up

But is the stock a buy after such a big daily gain?

Normally, this type of move would be a difficult act to follow simply because it invites profit-taking once the euphoria wears off. And we may see a downward rejection early next week once the dust settles.

Overall, though, there are still far more pros than cons here. The stock is much closer to the October low than the 2021 peak and is also down from the February high. There’s room — and now reason — for stocks to move higher.

This might help: An outlook by market research group Imarc Group shows that the global cloud computing industry, which primarily serves small and medium-sized businesses, will grow at an annual rate of 14.9% through 2032.