Is Datadog (DDOG) a Reliable Buy Based on Wall Street Analysts' Overly Optimistic Ratings?

In the ever-evolving landscape of stock market analysis, investors often grapple with conflicting signals from brokerage recommendations and earnings-driven rating models. Datadog (DDOG), a leader in cloud monitoring and analytics, has become a focal point of this debate. While Wall Street analysts have overwhelmingly endorsed the stock with "Strong Buy" ratings, the Zacks Rank-a quantitative model prioritizing earnings estimate revisions-has taken a more cautious stance. This article evaluates the validity of these divergent perspectives, using Datadog as a case study to explore whether brokerage optimism aligns with empirical financial metrics.

Wall Street's Optimism: A Double-Edged Sword

Wall Street analysts have assigned Datadog an average brokerage recommendation (ABR) of 1.35–1.36, placing it between "Strong Buy" and "Buy" on a 1-to-5 scale according to reports. Of the 42–43 recommendations, 79% are "Strong Buy" and 7% are "Buy," reflecting a near-unanimous bullish stance as per data. However, this enthusiasm raises red flags. Studies have long highlighted conflicts of interest among brokerage firms, as analysts may inflate ratings to maintain relationships with companies or secure underwriting business according to analysis. For instance, Datadog's recent Q3 2025 earnings of $0.55 per share-surpassing the Zacks Consensus Estimate by 22.22%-were celebrated as a triumph in a Nasdaq article. Yet, such one-time outperformance does not necessarily validate long-term optimism, especially when valuations remain stretched.

Zacks Rank: A Contrarian Lens

In contrast to Wall Street's exuberance, the Zacks Rank-a model that evaluates stocks based on trends in earnings estimate revisions-has assigned Datadog a #3 (Hold) rating as of December 2025 according to Zacks. This rating suggests the stock is expected to perform in line with the broader market, rather than outperform it as reported. The Zacks methodology, which prioritizes empirical data over subjective sentiment, considers four key factors: the magnitude of recent earnings estimate revisions, the number of analysts covering the stock, the trend in revisions over time, and the company's industry positioning as detailed on Zacks.

Datadog's recent financial performance, while impressive, does not fully justify a "Buy" rating. For the current fiscal year, the Zacks Consensus Estimate projects earnings of $2.00 per share and revenue of $3.39 billion, representing year-over-year growth of 9.9% and 26.2%, respectively according to financial data. However, these figures must be weighed against valuation metrics. Datadog trades at a Forward P/E ratio of 69.08 and a PEG ratio of 5.98, both significantly higher than the industry averages of 29.31 and 1.83 according to market analysis. Such premiums imply that the market is already pricing in aggressive future growth, leaving little room for error.

Reconciling the Discrepancy: Earnings Momentum vs. Valuation Concerns

The Zacks Rank's #3 (Hold) rating reflects a nuanced view of Datadog's prospects. While the company has demonstrated strong earnings momentum-beating estimates in Q3 2025 and securing a 3.93% increase in consensus EPS estimates over the past month according to Finviz-the model's emphasis on earnings revisions suggests caution. For example, the consensus estimate for Datadog's current fiscal year has remained unchanged over the past month, indicating stable but not accelerating expectations as reported by Finviz. This stability contrasts with the Wall Street analysts' enthusiasm, which may be influenced by Datadog's market leadership in the observability sector rather than its intrinsic financial metrics.

Moreover, the Zacks Rank's upgrade to #2 (Buy) in December 2025-cited in some sources-appears to be a temporary anomaly according to Nasdaq reporting. The most authoritative source, Zacks.com, confirms the stock's current rating as #3 (Hold), underscoring the model's reliance on recent earnings revisions rather than speculative growth narratives as stated on Zacks. This discrepancy highlights the importance of verifying ratings from primary sources, as secondary reports can sometimes misinterpret or misrepresent updates.

Conclusion: A Prudent Approach to Datadog

The contrast between Wall Street's "Strong Buy" ratings and the Zacks Rank's "Hold" recommendation underscores a critical lesson for investors: not all bullish signals are created equal. While Datadog's earnings growth and market position are undeniably strong, its valuation metrics suggest a high degree of risk. Investors relying solely on Wall Street analysts may overlook the inherent biases in brokerage recommendations, while those prioritizing earnings-driven models like Zacks Rank may miss out on companies with transformative potential.

For Datadog, the path forward hinges on whether it can sustain its earnings momentum without overextending its valuation. If the company continues to exceed estimates and secures further upward revisions to its earnings projections, the Zacks Rank may eventually align with Wall Street's optimism. Until then, a "Hold" rating serves as a prudent reminder that even the most promising stocks require careful scrutiny.