Investing.com -- DA Davidson upgraded Datadog (NASDAQ:DDOG) to Buy on Tuesday, citing the company's ability to maintain 20%+ growth into 2025 and beyond.
Analysts at the firm emphasized that Datadog has an "increasingly rare growth profile" in a challenging software environment, where such sustained growth is difficult to achieve.
DA Davidson views Datadog as a best-in-class company with a strong competitive moat, highlighting that observability spending remains mission-critical for enterprises.
They believe Datadog is particularly well-positioned as a leader in the space, and recent checks have shown promising data indicating rising demand.
"The observability market remains an attractive opportunity," the analysts noted, referencing a total addressable market (TAM) estimated at $62 billion by 2026, with a CAGR of 10.9%.
They state that Datadog is outgrowing that market at a rate of ~27%, and as IT workloads move from on-premise to the cloud, Datadog is expected to benefit significantly due to its best-of-breed solutions.
The firm also highlighted Datadog's reputation as the "Easy Button" of observability software, known for its simple yet powerful platform with out-of-the-box integrations.
DA Davidson's discussions with industry experts are said to have emphasized Datadog's cost-optimized back-end engine, which is driving customer adoption and positioning the company as a long-term winner in the space.
Additionally, developer data from DA Davidson showed a positive inflection point for Datadog, signaling improving demand trends.
Along with management's commentary on growing enterprise interest, it is said to suggest the potential for further revenue growth over the next 12 months.
With a raised price target of $140 (up from $115), DA Davidson believes Datadog's traction with enterprise customers and its expanding use cases will continue to drive growth.
They concluded that the company has "a premium to similar growth peers given anticipated upside to revenue growth in a software environment where growth is much harder to come by."