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On Monday, Stifel analysts maintained a Hold rating on Datadog (NASDAQ:DDOG) stock, with a consistent price target of $125.00. Currently trading at $105.83 with a market capitalization of $36.5 billion, Datadog appears slightly overvalued according to InvestingPro analysis. For deeper insights into Datadog’s valuation metrics and growth potential, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers. The firm’s analysis suggests that Datadog’s first quarter performance likely met expectations, potentially leading to approximately 3% revenue upside compared to previous forecasts. With impressive gross profit margins of 80.81% and projected revenue growth of 19% for FY2025, according to InvestingPro data, the company continues to demonstrate strong operational efficiency. This anticipated increase is partly attributed to the robust growth in usage of ChatGPT, which operates on Azure, one of the hyperscalers mentioned as performing well or as expected, along with AWS and GCP.
Stifel’s assessment indicates that the multiplier effect of AWS revenue on Datadog’s performance has increased significantly from 1.33x in the previous quarter to 1.45x. This marks the first quarter-over-quarter improvement since a modest rise in the second quarter of 2023. The firm believes that the expansion is feasible, considering the continued strong growth in ChatGPT usage on Azure, which likely compensates for any pricing advantages obtained by OpenAI in its fourth-quarter Datadog renewal.
The analysts project that, after accounting for the potential first-quarter upside, Datadog’s management is expected to guide for sequential additions of $15 million to $20 million for the second quarter of 2025. This guidance would be in line with the trends observed over the past three years and would suggest a second-quarter revenue forecast of $775 million to $780 million, compared to the consensus estimate of $771 million.
Stifel’s position reflects a cautious optimism, recognizing the potential positive reception by investors if Datadog’s guidance aligns with these projections. However, the firm also notes remaining uncertainties regarding the non-AI growth rate and the longevity of Datadog’s relationship with OpenAI. InvestingPro analysis shows the company maintains a GOOD financial health score, with analyst targets ranging from $115 to $200, suggesting potential upside despite current market uncertainties. Due to these factors, Stifel continues to recommend a Hold rating on Datadog shares.
In other recent news, Datadog has announced the acquisition of Eppo, a company specializing in feature flagging and experimentation, to enhance its product analytics capabilities. This move is expected to provide developers with comprehensive tools for building and deploying high-quality products with agility and reduced risk. In another strategic expansion, Datadog has also acquired Metaplane, a data observability platform, to bolster its monitoring and security capabilities for cloud applications. This acquisition aims to enhance proactive data quality management, particularly crucial for businesses relying on AI and platforms like Snowflake (NYSE:SNOW) and Databricks.
Rosenblatt Securities has adjusted its outlook on Datadog, reducing the stock price target to $150 from $160, while maintaining a Buy rating. The firm anticipates Datadog’s first-quarter financial results for fiscal year 2025 to meet or slightly exceed expectations, with a projected year-over-year organic revenue growth of 21%. The expectation is supported by positive reports from Cloud Service Providers and increased demand for AI-driven workloads. Meanwhile, recent market activity saw Datadog shares rise by 4.3% following robust quarterly results from tech giants like Microsoft (NASDAQ:MSFT), which positively impacted cloud and software stocks. These developments reflect Datadog’s ongoing efforts to expand its product offerings and address critical areas such as data observability and product analytics.
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