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Placing money on a cloud can take an investor’s wealth far higher. Metaphorically speaking, that’s one analyst’s current evaluation of enterprise cloud computing specialist DigitalOcean (NYSE: DOCN).

Following the company’s latest earnings report published in mid-May, Canaccord Genuity‘s David Hynes raised his price target on the shares. He continues to be bullish on the specialty tech stock’s future.

An Ocean well worth a swim

Just after DigitalOcean’s first-quarter figures were made public, Hynes added $1 to his price target on the stock for a new figure of $42 per share. That cautious raise matched the analyst’s cautiously optimistic buy recommendation on the cloud company; he feels the potential upside of the shares over the next 12 months is a decent (if unspectacular) 6.6% based on the current price.

In that quarter, DigitalOcean beat the average prognosticator estimates for both revenue and profitability, posting a meaty 54% year-over-year improvement in non-GAAP (adjusted) net income per share. The icing on the cake is that an assertive push into artificial intelligence (AI) functionalities is already boosting results.

In his note detailing the price target adjustment, Hynes wrote of DigitalOcean that the company remains a compelling buy at its present valuations, which are fairly modest given its potential. He added that DigitalOcean is “in the midst of a model turnaround exposed to strong secular trends in small- and mid-sized business managed service adoption and AI app development.”

The right recipe for growth

The tech sector moves lightning-fast, so at times, it’s almost hard to remember that cloud computing was one of its hottest segments in the very recent past.

Investors shouldn’t forget that, as the tech world is continuing to migrate many aspects of its operations to the cloud. Mix that in with the sky-high demand for AI, and you’ve got quite the potent combination for business growth.

DigitalOcean has smartly positioned itself to take advantage of this confluence, so I think Hynes’ evaluation is conservative if anything. I would expect this stock to soar well higher; in my mind, it’s surely a buy.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DigitalOcean. The Motley Fool has a disclosure policy.

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