Wedbush Securities just came out with a bullish note on Datadog (DDOG) and added the name to its AI 30 list. Analysts believe the company is an excellent choice for investors betting on derivative beneficiaries of the AI boom.
Datadog’s bull thesis isn’t just the fact that AI infrastructure spending is going strong. The company initially offered infrastructure monitoring products but has now moved on to digital experience monitoring, software delivery, product analytics, AI observability, and similar services. This isn’t just a case of diversification. IT systems are becoming more and more complex with AI integration — and the more complex they become, the more they need Datadog’s products and services. Investors right now are focused on the supply shortages in building AI infrastructure. What they haven’t yet considered is that once that infrastructure is up and companies start using AI in production, they will need to scale up operations to make that possible. Datadog has an early-mover advantage to capture that market, whenever it shows up.
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Another factor that makes Datadog special is that it is infrastructure-agnostic. We already know that, one way or another, AI infrastructure will get built. By investing in Datadog, investors are betting that whoever builds that infrastructure will need Datadog’s services to monitor, secure, and optimize AI workloads. In other words, as AI and cloud workloads continue to scale, Datadog becomes the ultimate beneficiary, irrespective of who is doing the scaling.
About Datadog Stock
Datadog provides an observability service for cloud-scale applications as well as monitoring and analytics for servers, databases, tools, and services, delivered via a Software-as-a-Service (SaaS) data analytics platform. The company's product portfolio includes observability pipelines, product analytics, database monitoring, error tracking, workflow automation, and the App Builder.
Over the past year, DDOG stock has delivered strong gains of around 96%. In comparison, the Global X Cloud Computing ETF (CLOU) has generated returns of about 3% during the same period, showing that DDOG has significantly outperformed the broader industry. The strong momentum has continued this year as well, with Datadog gaining approximately 65% year-to-date (YTD) versus the exchange-traded fund's (ETF) roughly 2% return.
www.barchart.com At a forward price-to-earnings (P/E) ratio of 90 times, this is the kind of multiple that sees investors exit. It would be unfair to argue that the stock could enjoy a higher multiple in future. However, that doesn’t mean there is no upside. Rather, the potential upside is all coming from earnings growth and, as Datadog grows, through improved margins. Current consensus estimates foresee the company growing at around 20% for the next three years. As the infrastructure buildout plays out, this estimate may go higher — and with it the price of DDOG stock.
Datadog Reports Earnings
Datdog posted its first-quarter fiscal 2026 results on May 7, reporting billings of $1.03 billion, up 37% year-over-year (YOY) increase. Remaining performance obligations (RPO) stood at $3.48 billion, rising 51% YOY. Gross profit for the quarter reached $807 million, with a gross margin of 80.2%. Operating income totaled $223 million, resulting in an operating margin of 22%.
Going forward, Datadog expects Q2 revenue in the range between $1.07 billion and $1.08 billion, reflecting YOY growth of 29% to 31%. Non-GAAP operating income is projected to range from $225 million to $235 million, with an operating margin of 21% to 22%. On the earnings side, non-GAAP net income per share is estimated at $0.57 to $0.59 per share. For fiscal 2026, the company raised its guidance and now expects revenue to be $4.3 billion to $4.34 billion.
What Are Analysts Saying About Datadog Stock?
Throughout May, and especially after the earnings report, analysts revised their price targets on DDOG stock upward. Stifel has a particularly high price target on the stock at $305, which implues 36% potential upside. Meanwhile, D.A. Davidson and Wells Fargo offer price targets of $250 and $230, respectively.
The stock continues to trade around the mean target price of $222.30, while the high price target of $320 implies 43% potential upside from current levels. Overall, DDOG stock has a consensus “Strong Buy” rating.
www.barchart.com On the date of publication, Jabran Kundi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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