Datadog's Strong Growth Prospects and Market Position Justify Buy Rating

Datadog's strong growth prospects, driven by demand for its Observability products and good traction in its Logs segment, justify a Buy rating from TD Cowen analyst Andrew Sherman. He expects the company to exceed its guidance with significant revenue growth and gain market share from competitors like Splunk. Datadog's sales headcount has increased, and its relationship with major clients like OpenAI suggests continued growth in usage.

Datadog, a leading technology company, has received a strong endorsement from Wall Street analysts, with TD Cowen's Andrew Sherman maintaining a Buy rating and raising the price target to $170.00 [1]. Sherman's confidence in Datadog's future performance is driven by several key factors, including the company's expected revenue growth, robust demand for its Observability products, and good traction in its Logs segment.

The analyst expects Datadog to exceed its guidance with significant revenue growth, driven by strong demand for its Observability products and good traction in its Logs segment. Additionally, Datadog is poised to gain market share from competitors like Splunk, which is perceived to be lagging in innovation. Furthermore, Datadog's sales headcount has increased significantly, indicating robust sales momentum. The company’s relationship with major clients, such as OpenAI, suggests continued growth in usage, particularly in mission-critical applications. These factors, combined with the potential for further guidance raises, underpin Sherman’s confidence in Datadog’s ability to outperform expectations, justifying the Buy rating [1].

In another report released on July 23, Cantor Fitzgerald reiterated a Buy rating on the stock with a $171.00 price target, raising the price target from $150. The new target falls within the broader analyst range of $105 to $200, with the company currently commanding a market capitalization of $51.75 billion. The firm expects Datadog to deliver results exceeding management’s guidance of 23% growth, followed by an increase to its full-year outlook. Cantor Fitzgerald’s research indicates strong demand for Datadog’s observability products, good traction for its logs offerings, and potential market share gains against competitor Splunk. The company’s impressive 80.15% gross profit margin and sustained revenue growth of 25.54% support this optimistic outlook [2].

Datadog shares have climbed approximately 68% from their April lows, outperforming the broader enterprise cloud index, which gained 29% during the same period. The stock currently trades at roughly 50 times TD Cowen’s estimated enterprise value to free cash flow ratio for calendar year 2026. According to InvestingPro, the stock appears overvalued at current levels, with 12 additional exclusive insights available to subscribers. The analyst firm believes Datadog’s current valuation is justified given the company’s growth trajectory, scale, profit margins, and leadership position in its market. TD Cowen’s new price target represents approximately 60 times the estimated enterprise value to free cash flow ratio for calendar year 2026 [2].

Datadog was added to the S&P 500 index in early July, which TD Cowen suggests could attract a broader investor base to the stock. In other recent news, Datadog has been exploring a significant acquisition, reportedly in talks to acquire Israel-based Upwind for approximately $1 billion. This would mark the largest acquisition in the company’s history. Cantor Fitzgerald reiterated an Overweight rating with a $171 price target, while BofA Securities maintained a Buy rating and a $175 price target, noting the acquisition could enhance Datadog’s security offerings. Morgan Stanley raised its price target for Datadog to $165 from $115, citing the company’s innovation and market share growth. Additionally, Datadog announced the launch of its full product range on Amazon Web Services’ Asia-Pacific (Sydney) Region, expanding its infrastructure footprint. This expansion supports local data requirements, benefiting sectors like government and banking. Furthermore, Datadog has joined the S&P 500 Index, highlighting its ongoing growth in the market. These developments indicate Datadog’s strategic moves to bolster its position in the industry [2].

References:
[1] https://www.tipranks.com/news/ratings/datadogs-strong-growth-prospects-and-market-position-justify-buy-rating-ratings
[2] https://za.investing.com/news/analyst-ratings/datadog-stock-price-target-raised-to-170-from-150-at-td-cowen-93CH-3805778