Datadog DDOG shares have surged 88.7% year to date, comfortably outpacing the Zacks Computer and Technology sector's 14.8% growth and the Zacks Internet Software industry's 8% decline over the same stretch of trading.
The rally reflects growing investor confidence in Datadog's role as a core observability and security platform for enterprises navigating increasingly complex, AI-driven infrastructure. With first-quarter 2026 results confirming accelerating growth and management issuing upbeat forward guidance, the near-term setup still looks favorable for investors willing to ride out some volatility, even as rising costs and intensifying competition warrant a genuinely watchful eye.
DDOG Outperforms Sector, Peers YTD
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Catalysts Fuelling DDOG’s Rally
Datadog's first-quarter 2026 results showed revenues climbing 32% year over year to $1,006 million, marking the company's first quarter above $1 billion and a sequential acceleration from 29% growth in the prior period. Customers with annual recurring revenues of $100,000 or more grew 21% year over year to about 4,550. Non-GAAP operating margin held at 22%, while free cash flow reached $289 million.
Momentum has continued into the current quarter. Last month, Datadog hosted its DASH 2026 conference, unveiling more than 100 new capabilities to help customers manage growing AI and security complexity, including expanded agentic tooling. On June 30, the company announced its acquisition of Adaptive ML, a startup building a Reinforcement Learning Operations platform, which will join Datadog AI Research to accelerate work on specialized AI agents trained on real-world observability signals. The company also achieved FedRAMP High certification during the quarter and launched GPU Monitoring to help customers better manage AI infrastructure spend.
Forward-Looking Guidance by DDOG Holds Promise
For the second quarter of 2026, Datadog guided revenues between $1.07 billion and $1.08 billion, non-GAAP operating income to be $225-$235 million, and non-GAAP earnings per share between 57 cents and 59 cents.
The Zacks Consensus Estimate calls for 2026 revenues of $4.34 billion, up 26.62% year over year, with earnings pegged at $2.41 per share, up 17.56%, suggesting the current valuation gap is arguably well justified by Datadog's faster, AI-driven observability growth trajectory relative to the broader field.
For full-year 2026, management projected revenues between $4.30 billion and $4.34 billion, non-GAAP operating income to be $940-$980 million, and non-GAAP earnings per share between $2.36 and $2.44, underscoring continued confidence in sustained double-digit growth.
Datadog, Inc. Price and Consensus
Datadog, Inc. price-consensus-chart | Datadog, Inc. Quote
Headwinds Worth Monitoring
Despite the strong trajectory, risks remain. GAAP operating margin was just 1% in the quarter, reflecting heavy stock-based compensation and continued R&D investment, including newly absorbed costs tied to the Adaptive ML deal. Continued reliance on large enterprise deals also introduces some lumpiness to quarterly bookings, and management has flagged macro uncertainty tied to trade policy and IT spending as ongoing watch items.
Valuation and Competitive Landscape
Datadog carries a Zacks Value Score of F, trading at a forward 12-month price-to-sales ratio of 19.2X, well above the industry median of 4.78X. That steep premium reflects Datadog's notably stronger growth profile relative to slower-growing peers, whose more modest multiples mirror decelerating or largely flat expansion.
DDOG’s P/S Valuation
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DDOG faces significant competition from the likes of International Business Machines IBM, Cisco Systems CSCO and Dynatrace Software DT, among others. Cisco Systems has advanced 45.2%, while Dynatrace has gained 4.1% and International Business Machines has returned 3.4%, highlighting Datadog's clear outperformance against all three legacy and pure-play rivals alike.
Cisco Systems leans on its deep network-layer footprint and hardware relationships to push observability bundles into existing accounts, while Dynatrace differentiates through AI-driven causal analytics aimed squarely at large enterprise customers. International Business Machines folds observability into its broader hybrid-cloud and consulting stack, giving it reach but comparatively less focus. Datadog's unified platform keeps winning share, though Cisco Systems, Dynatrace, and International Business Machines each retain entrenched enterprise relationships that keep the observability and security market intensely contested heading into the second half of 2026.
Conclusion
With accelerating revenue growth, robust guidance and steady AI-driven innovation spanning GPU monitoring, agentic security tooling and the Adaptive ML acquisition, Datadog's growth story remains firmly intact. Despite thin GAAP margins and a crowded competitive field, the near-term outlook still tilts favorably enough for patient, growth-oriented investors to consider Datadog.
DDOG currently carries a Zacks Rank #2 (Buy) and a Growth Score of A, a favorable combination that offers a strong investment opportunity per the Zacks proprietary methodology. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).