Artificial Intelligence stocks are showing signs of recovery, yet maintain an affordable price range.
Datadog (DDOG), the cloud monitoring and observability service provider, is experiencing a resurgence in interest due to its expanding presence among AI-native customers and a perceived reasonable valuation.
According to recent analyst ratings, Datadog has a "Moderate Buy" overall consensus, with 24 analysts issuing buy ratings, five holding ratings, and one sell rating. The average 12-month price target is approximately $146.79, though individual analyst targets vary widely.
Barclays recently raised its price target from $128 to $170, assigning an "overweight" rating, while other notable targets include BTIG at $136 (buy), Canaccord Genuity at $145 (buy), Rosenblatt at $150 (buy), and Wells Fargo at $115 (equal weight). Macquarie set a target of $140 (outperform). These targets reflect a mix of optimism about Datadog’s growth drivers, including AI, balanced by concerns over valuation and competitive pressures.
Datadog's product suite directly benefits from the rise of AI-native companies and enterprises deploying generative AI workloads. By providing tools that help manage complex, distributed, and cloud-native environments, Datadog is well-positioned to capture growth as AI adoption expands. The increasing demand for observability across AI-driven applications likely supports the company’s premium valuation compared to traditional SaaS peers.
However, competition from established cloud providers and specialty observability vendors remains intense. Datadog must continue to innovate and integrate new features relevant for AI-native customers to maintain growth and fend off competition. Additionally, as a high-growth SaaS company, Datadog is sensitive to broader tech spending trends and potential pullbacks in cloud infrastructure investment.
Despite these risks, the average 12-month price target for Datadog shares is nearly $139, about 9% higher than the current trading price. The stock should respond positively if Datadog can deliver on its higher guidance or surpass it. Notably, the stock's current valuation, as measured by its price-to-sales (P/S) ratio, remains near the bottom of its range.
In 2022, Datadog shares plummeted, cratering by 68%. However, the stock has since recovered significantly and is still considered undervalued compared to many stocks, even within the tech sector. The stock currently trades at a P/S ratio of around 16, significantly lower than its peak levels above 60 in 2020 and 2021.
Datadog serves tens of thousands of clients across various industries, including e-commerce, gaming, and finance. The use of AI models is rapidly spreading into the day-to-day operations of numerous organizations, creating a new source of revenue for Datadog, contributing to its growth.
In conclusion, Datadog is viewed as a leader in observability with a strong position in the emerging AI/ML infrastructure market. The analyst community is moderately bullish on Datadog's prospects, and the company's ability to serve AI-native customers is a key differentiator. However, investors should monitor competitive dynamics and the sustainability of its growth rate as the stock is not without risks.
- The financial sector sees potential in Datadog, with some analysts recommending buying the stock, like Barclays with an "overweight" rating and a price target of $170.
- Datadog's expanding presence among AI-native customers and its focus on AI-driven applications contribute to the company's premium valuation in the stock market.
- The increasing demand for observability across AI-driven applications is a growth driver for Datadog, but the company faces intense competition from established cloud providers and specialty observability vendors.
- Despite the competitive landscape and broader tech spending trends, the average 12-month price target for Datadog shares is above the current trading price, indicating a positive outlook for investors in the financial sector considering the company's position in the AI/ML infrastructure market.
