DigitalOcean Is Underappreciated, Goldman Sachs Says In Bullish Take On Cloud Stock

Shares of DigitalOcean Holdings Inc DOCN were climbing in early trading on Tuesday, along with other big stocks moving higher.

The stock has underperformed year to date, likely due to “a cyclical normalization in cloud optimization spending” and the ongoing management transition, according to Goldman Sachs.

The DigitalOcean Analyst: Gabriela Borges upgraded the rating for DigitalOcean from Sell to Buy, while maintaining the price target at $33.

The DigitalOcean Thesis: Even after adding 17% on Nov. 3, the stock is down 7% year to date, versus the 30% rally in the Nasdaq, Borges said in the upgrade note.

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The normalization in cloud optimization spending has been “particularly acute in subsectors where DO has outsized exposure such as SaaS builders, Video Games, Streaming, and Web Agencies,” the analyst wrote. “We believe the business is now approaching a cyclical trough."

“As macro stabilizes, we believe the structural improvements that DO has made to its mix shift and cost structure will become more obvious, driving better revenue growth and continued FCF margin expansion,” Borges further stated.

DOCN Price Action: Shares of DigitalOcean had risen by 13.96% to $27.18 at the time of publication Tuesday.