Last Update 22 Feb 26

Fair value Decreased 6.27%

DDOG: AI Workloads And Cloud Migrations Will Drive Multiple Re Rating

Our updated Datadog narrative reflects a lower fair value estimate of $241.36, as analysts trim price targets by $15 to $70 on more cautious assumptions for revenue growth and profit margins, partly offset by a higher future P/E multiple that still points to investor interest in the story.

Analyst Commentary

Recent research on Datadog shows a split tape, but with a clear pocket of bullish analysts who see room for the shares to re-rate if execution on growth and margins holds up against rising competition and budget scrutiny.

On the positive side, several firms have either raised targets previously or upgraded their stance, even as many others reset expectations lower. This mix of cautious target cuts and selective upgrades is what feeds into our updated fair value work and the higher future P/E multiple assumption.

Bullish Takeaways

One of the more constructive signals comes from bullish analysts who upgraded Datadog to a more positive rating with a US$180 price target. This indicates confidence that the company can sustain its growth profile and justify a premium valuation despite a reset in the broader software group.
Another upgrade framed Datadog as a potential outperformer based on checks that pointed to strong quarterly results. If realized, this would help support the current multiple and limit downside to earnings expectations.
Several firms that trimmed Datadog targets, such as those moving to US$195 or US$170, still maintained positive ratings on the stock. This suggests they see near term pressure on valuation assumptions rather than a fundamental breakdown in the growth story.
Even with one major firm initiating with a Sell rating and a US$113 target, the broader set of bullish analysts continue to highlight long term demand for observability and security tooling as a key underpinning for Datadog's revenue base. This supports our view that investor interest in the name remains intact.

For you as an investor, the takeaway is that while target cuts have adjusted expectations, there is still a group of bullish analysts anchoring to scenarios where Datadog executes against its product roadmap and customer expansion plans. This is reflected in the higher valuation multiples used in our updated narrative.

What's in the News

Datadog issued earnings guidance for the first quarter of 2026, with expected revenue in a range of US$951 million to US$961 million, giving investors a concrete reference point for near term expectations.
For full year 2026, Datadog guided to revenue between US$4.06b and US$4.10b, which helps you frame the scale of the business as management currently sees it.
Datadog hosted an Analyst and Investor Day, providing a forum for management to outline the business outlook and for analysts to refresh their models and assumptions.
Contrast Security and Datadog launched an integration that feeds verified application runtime intelligence into Datadog Cloud SIEM, aiming to filter out low value security alerts and help security teams focus on higher priority threats.
Flywl announced a partnership with Datadog to centralize how enterprises purchase and manage Datadog across major cloud marketplaces, including tools for tracking usage, licensing, capacity limits, and historical cost trends.
Barron's highlighted Datadog alongside other software names in a discussion of technology stocks that could be positioned for interest if tech buyout activity increases, putting extra attention on the group. (Barron's)
Private equity investor Orlando Bravo told the Financial Times that the software selloff is creating what he sees as a "huge buying opportunity," a comment that keeps the broader software sector, including names like Datadog, in focus for investors watching deal making and sentiment. (Financial Times)

Valuation Changes

Fair Value: The updated fair value estimate has moved from $257.52 to $241.36, a modest reduction that reflects more cautious assumptions in the model.
Discount Rate: The discount rate has risen slightly from 8.47% to 8.48%, implying a marginally higher required return on the shares.
Revenue Growth: The revenue growth assumption has fallen from 26.31% to 23.57%, indicating a more conservative view on the pace of future expansion.
Net Profit Margin: The net profit margin assumption has moved down from 12.39% to 10.65%, pointing to a tighter outlook on future profitability.
Future P/E: The future P/E multiple has increased from 153.73x to 167.72x, suggesting that a larger portion of the fair value depends on the market assigning a higher earnings multiple over time.

Accelerating cloud adoption and increasing software complexity are driving strong demand for Datadog’s unified observability and monitoring solutions.
Expansion of new products and international markets is fueling upsell opportunities, improved operating leverage, and long-term growth prospects.
Intensifying competition, regulatory challenges, and increased R&D spending threaten Datadog’s pricing power, margins, and growth, while acquisition dependencies heighten operational risks.

Catalysts

About Datadog

Operates an observability and security platform for cloud applications in the United States and internationally.What are the underlying business or industry changes driving this perspective?

The ongoing acceleration of enterprise cloud migrations and digital transformation initiatives creates a long runway for Datadog’s platform adoption, increasing both its addressable market and opportunity for recurring revenue growth as customers digitize core operations.
Rapid expansion in the complexity and scale of software workloads—including AI/ML-driven, distributed, and microservices architectures—enhances the critical need for unified observability platforms, positioning Datadog for continued new customer acquisition, higher average deal sizes, and sustained premium ARPU.
The explosive rise in AI-generated application code, highlighted by Datadog’s strong growth in AI-native customers and adoption of AI observability products, is expected to create greater demand for monitoring and security solutions over the next several years, directly driving upside in both revenue and long-term earnings.
Continued launch and rapid scaling of new high-demand products, such as Flex Logs and Database Monitoring, demonstrates Datadog’s ability to drive upsell momentum within its existing base and quickly capture emerging use cases, improving top-line growth and increasing operating leverage as product attach rates climb.
Aggressive investments in international market expansion and sales capacity are increasing Datadog’s penetration in underpenetrated global segments, laying the foundation for accelerated revenue growth and operating margin expansion as the company achieves greater scale abroad.

Datadog Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more optimistic perspective on Datadog compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
The bullish analysts are assuming Datadog's revenue will grow by 25.6% annually over the next 3 years.
The bullish analysts assume that profit margins will increase from 5.8% today to 12.9% in 3 years time.
The bullish analysts expect earnings to reach $724.6 million (and earnings per share of $1.07) by about August 2028, up from $165.8 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 124.5x on those 2028 earnings, down from 277.0x today. This future PE is greater than the current PE for the US Software industry at 38.9x.
Analysts expect the number of shares outstanding to grow by 2.43% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.5%, as per the Simply Wall St company report.

Datadog Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Intensifying price and product competition from hyperscale cloud providers offering bundled or lower-cost native observability solutions may weaken Datadog’s pricing power and slow future revenue growth.
The increasing adoption of open standards and vendor-neutral solutions like OpenTelemetry raises customer price sensitivity and makes customer retention harder, which could lead to increased churn and downward pressure on revenues and gross margins.
New and evolving data privacy regulations and data residency requirements impose higher compliance costs, limit data collection or storage options, and could restrict Datadog’s observability capabilities—ultimately increasing operating expenses and constraining revenue in regulated verticals and geographies.
Growing reliance on acquisitions for expansion, as highlighted by Eppo and Metaplane, exposes Datadog to integration risks, operational complexity, and potential margin dilution, pressuring net margin and earnings over time.
Customer consolidation preferences and a shift toward all-in-one platforms could force Datadog to accelerate R&D investment to broaden its platform, resulting in elevated R&D costs and potential margin compression while risking slower adoption if integration or innovation lags behind industry giants.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bullish price target for Datadog is $190.35, which represents two standard deviations above the consensus price target of $151.92. This valuation is based on what can be assumed as the expectations of Datadog's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $200.0, and the most bearish reporting a price target of just $105.0.
In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $5.6 billion, earnings will come to $724.6 million, and it would be trading on a PE ratio of 124.5x, assuming you use a discount rate of 8.5%.
Given the current share price of $132.94, the bullish analyst price target of $190.35 is 30.2% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystHighTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystHighTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystHighTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Accelerating Cloud Migration And Digital Transformation Will Drive Unified Observability