Last Update 09 Jan 26

Fair value Decreased 1.64%

DDOG: Renewed OpenAI Commitment Will Support Shares Through Pricing Pressure Concerns

Analysts have trimmed their Datadog fair value estimate to about US$208 from roughly US$212, reflecting lower price targets that factor in competitive pricing pressure after Palo Alto Networks' Chronosphere deal and a reset in multiples, even as recent research still highlights strong Q3 execution, renewed OpenAI commitments, and ongoing AI related demand as key supports for the story.

Analyst Commentary

Street research on Datadog has split into two clear camps, with some focusing on strong recent execution and AI related demand, and others more focused on competition, pricing pressure, and the valuation reset after the Palo Alto Networks and Chronosphere news.

Bullish Takeaways

Bullish analysts highlight Q3 as an inflection quarter, pointing to accelerating non AI native growth and broad based strength across the business, which they see as supportive of higher valuation multiples.
The early renewal and expansion of usage with OpenAI, described as Datadog's largest AI native customer, is viewed as removing a major overhang around potential attrition and providing better visibility into future consumption trends.
Several bullish analysts point to Datadog's breadth across observability and security, and its relevance with AI native workloads, as reasons the company could continue to win share even as competition intensifies.
Upward price target revisions from a range of firms following Q3, into the US$180 to US$240 area, reflect a view that recent results and commentary support a premium valuation despite macro and competitive questions.

Bearish Takeaways

Bearish analysts cite the Palo Alto Networks and Chronosphere deal and management comments around Chronosphere offering comparable capability at roughly one third of incumbent costs as a sign that pricing compression risk for observability vendors, including Datadog, could become more topical.
The reduction in some price targets, such as the cut to US$140 and the trimming of fair value estimates, is tied to concerns that market multiples have reset and that the prior valuation left less room for execution hiccups.
There is ongoing focus on competitive intensity, with some research emphasizing that Datadog and peers will need to keep their product engines running at full speed to maintain differentiation and justify current multiples.
One firm prefers to stay on the sidelines for now after moving to Neutral, even while acknowledging better than expected growth outside OpenAI, which suggests that for some investors the recent rally already prices in a good amount of execution and AI related upside.

What's in the News

Reports indicate Datadog is working with Morgan Stanley to again explore a potential takeover bid for GitLab, with a possible offer suggested at over US$60 per share. This highlights renewed M&A interest around the DevOps and observability stack (Street Insider / Reuters).
Datadog issued revenue guidance for Q4 2025 of US$912 million to US$916 million and for full year 2025 of US$3.386b to US$3.390b, giving investors concrete top line figures to anchor expectations around the year ahead.
Datadog and Contrast Security announced a new integration that feeds verified application runtime intelligence into Datadog Cloud SIEM. The integration aims to help security teams filter real application layer exploits from background noise and automate responses.
Datadog and Flywl announced a partnership that connects Datadog usage data with Flywl's marketplace procurement platform. The partnership has the goal of giving enterprises clearer views of Datadog consumption, costs, licensing, and capacity across major cloud marketplaces.

Valuation Changes

Fair value estimate trimmed slightly from about US$211.97 to about US$208.49 per share.
Discount rate nudged up modestly from about 8.47% to about 8.50%, implying a slightly higher required return in the model.
Revenue growth kept effectively unchanged, moving fractionally from about 21.47% to about 21.46%.
Net profit margin lifted modestly from about 11.73% to about 11.98%, reflecting a small improvement in modeled profitability.
Future P/E reduced from about 150.23x to about 144.83x, pointing to a slightly lower multiple applied to forward earnings.

Robust demand for unified observability and security amid complex cloud trends, with product innovation and consolidation reinforcing Datadog's customer retention and top-line growth.
Strategic international expansion and operational cost optimization are driving sustained profitability improvements and diversifying Datadog's market opportunities.
Reliance on large AI customers, rising costs, fierce competition, cloud cost pressures, and tightening data privacy rules threaten Datadog's growth, profitability, and differentiation.

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?

Accelerating enterprise cloud migration and broader adoption of AI workloads are driving increased demand for unified observability and security platforms, positioning Datadog as a mission-critical vendor and supporting continued topline revenue growth as digital transformation deepens across industries.
Rising complexity of hybrid and multi-cloud environments, combined with the proliferation of microservices and AI-driven applications, is fueling customer consolidation onto all-in-one platforms like Datadog-strengthening customer retention, expanding average contract values, and supporting long-term revenue and gross margin growth.
Ongoing product innovation (e.g., autonomous AI agents, enhanced security modules, expanded log and data observability) is increasing platform breadth and relevance, providing cross-selling opportunities and driving higher average revenue per user and net retention rate, which in turn improves recurring revenue predictability and gross margins.
Strategic investments in international sales capacity and expanded partnerships with cloud hyperscalers are opening up new markets, diversifying the customer base, and increasing operating leverage-paving the way for sustained international revenue growth and improving operating margins over time.
Datadog's focus on internal cloud cost optimization, platform efficiency, and leveraging its own solutions for cost savings is already contributing to higher gross margins, and further improvements are expected to flow through to operating income and net earnings as volume scales.

Datadog Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Datadog's revenue will grow by 19.9% annually over the next 3 years.
Analysts assume that profit margins will increase from 4.1% today to 7.8% in 3 years time.
Analysts expect earnings to reach $406.8 million (and earnings per share of $0.89) by about September 2028, up from $124.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.0 billion in earnings, and the most bearish expecting $145.8 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 189.2x on those 2028 earnings, down from 393.2x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
Analysts expect the number of shares outstanding to grow by 2.66% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.47%, as per the Simply Wall St company report.

Datadog Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Heightened revenue concentration among AI native customers creates potential volatility, as Datadog acknowledges possible short-term drops in revenue or usage optimization and renegotiated contract terms, which could negatively impact revenue growth if a few large customers reduce spend.
Persistent investment in R&D and global expansion, while supporting innovation, has led to accelerating OpEx growth (30% YoY in Q2), creating pressure on operating margins and long-term profitability if revenue growth fails to keep pace.
Intensifying competition from both hyperscalers (AWS, Azure, GCP launching their own observability tools) and open-source platforms (Grafana, OpenTelemetry, Prometheus) could force Datadog to lower pricing or face slower customer acquisition, risking revenue and net margin compression.
Increasing emphasis on cloud cost optimization among enterprise customers and the risk of insourcing or vendor consolidation could lead to smaller observability footprints, reduced average revenue per user (ARPU), and stiffer headwinds to topline growth.
Escalating regulatory pressure around data privacy (such as evolving GDPR, CCPA, and global privacy regimes) may raise compliance and operational costs, limit data collection and analysis capabilities, and ultimately erode profitability and product differentiation over the long term.

Valuation

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

The analysts have a consensus price target of $159.932 for Datadog based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $5.2 billion, earnings will come to $406.8 million, and it would be trading on a PE ratio of 189.2x, assuming you use a discount rate of 8.5%.
Given the current share price of $140.46, the analyst price target of $159.93 is 12.2% 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

AnalystConsensusTarget 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 AnalystConsensusTarget 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 AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

DDOG: AI Demand And M&A Activity Will Shape Outlook Amid Competitive Pressures