Last Update 15 Dec 25

Fair value Increased 48%

DDOG: AI Demand And Potential GitLab Deal Will Drive Shares Higher

Analysts have raised their consolidated price target for Datadog to about $170 from $115, reflecting stronger expected revenue growth and AI driven demand, even as they factor in higher discount rates, lower near term margins, and increased competitive and pricing pressures following Palo Alto Networks' Chronosphere acquisition.

Analyst Commentary

Bearish analysts acknowledge Datadog's strong execution and AI related tailwinds but are tempering expectations for upside, especially in light of Palo Alto Networks' planned acquisition of Chronosphere and the renewed focus on pricing and competitive intensity in observability.

Several recent research updates highlight that while Datadog is seen as well positioned structurally, investors may have to contend with a bumpier path for multiples and growth as the market digests both macro and competitive crosscurrents.

Bearish Takeaways

Some bearish analysts have trimmed price targets or initiated with Neutral ratings, citing valuation that already embeds robust growth, which raises the bar for continued outperformance.
The Chronosphere acquisition has renewed concern that lower cost alternatives could pressure observability pricing, creating downside risk to Datadog's revenue growth and margin trajectory if discounting becomes more widespread.
Cautious commentary around Datadog's largest AI native customer and the possibility of insourcing observability continues to be framed as a key execution risk, with potential to reintroduce volatility if usage trends soften.
Even as growth expectations have been revised higher following recent results, some bearish analysts highlight the risk that current acceleration proves transitory, which could force a de rating if revenue expansion and net retention moderate faster than anticipated.

Overall, the cautious camp is less focused on Datadog's competitive position today and more on whether current growth, pricing, and AI uplift are sustainable enough to justify premium valuation multiples over the medium term.

What's in the News

Datadog is said to be working with Morgan Stanley to explore a renewed takeover bid for GitLab, with a potential offer reportedly above $60 per share, reviving prior sale discussions between the two companies (Street Insider/Reuters).
Datadog issued new guidance for the fourth quarter of 2025, projecting revenue between $912 million and $916 million, and full year 2025 revenue between $3.386 billion and $3.390 billion (company guidance).
Datadog and Contrast Security launched a new integration that feeds verified application runtime intelligence into Datadog Cloud SIEM, aiming to reduce noise from low value alerts and speed incident response for security operations teams (company announcement).
Flywl announced a partnership with Datadog to streamline how enterprises procure and manage Datadog across major cloud marketplaces, providing unified visibility into usage, costs, licensing, and capacity (company announcement).

Valuation Changes

Consensus Analyst Price Target has risen significantly, from about $115 to approximately $170. This implies a materially higher fair value assessment for Datadog shares.
Discount Rate has increased modestly, from roughly 7.8 percent to about 8.5 percent. This reflects slightly higher perceived risk or required return in the valuation framework.
Revenue Growth has been revised higher, with projected growth moving from around 15.2 percent to approximately 17.9 percent. This indicates stronger expected top line momentum.
Net Profit Margin has fallen meaningfully, from about 5.3 percent to roughly 1.8 percent. This suggests lower near term profitability assumptions despite higher growth.
Future P/E has expanded sharply, climbing from roughly 235x to more than 870x. This signals a substantially richer earnings multiple embedded in the updated valuation.

Rising compliance costs and stricter data regulations may limit global expansion and add operational complexity.
Competitive pressures and increasing demand for flexible, self-hosted solutions could weaken Datadog’s pricing power and impact long-term revenue stability.
High dependence on large AI-native customers, rising costs, and intensifying competition may undermine revenue growth, profitability, and market share sustainability.

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?

While Datadog is experiencing robust growth from cloud migration and digital transformation initiatives, the increasing prevalence of data privacy regulations and enterprise concerns around data residency—reflected in the need for new local data centers—could restrict customer adoption in some regions, potentially leading to higher compliance costs and limiting international revenue expansion.
Despite Datadog's expanding product portfolio and swift adoption of new solutions like Flex Logs and Database Monitoring, competition from open-source and low-cost vendor-agnostic alternatives poses a threat, especially as customers look to consolidate and optimize IT spending, potentially flattening net retention rates and impacting future revenue growth.
Although AI-native customers are contributing a significant portion of ARR growth (now at 8.5 percent of ARR from 3.5 percent a year ago), revenue concentration in a few large clients within this cohort introduces volatility and risk of gross margin compression as contract renegotiations intensify and customer usage patterns remain unpredictable.
While Datadog's strong investments in AI observability and next-generation monitoring support its positioning as a technology leader, the ongoing commoditization of infrastructure monitoring and the rise of hyperscaler-native offerings could erode pricing power over time, increasing pressure on operating margins as Datadog is forced to compete on price and functionality.
Despite large enterprise wins and high customer adoption of multi-product offerings, growing demand for hybrid and multi-cloud flexibility may push more enterprises toward self-hosted or bring-your-own-cloud solutions, challenging Datadog’s cloud-centric delivery model and potentially reducing its average revenue per user and recurring earnings quality in the long term.

Datadog Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more pessimistic perspective on Datadog compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
The bearish analysts are assuming Datadog's revenue will grow by 15.2% annually over the next 3 years.
The bearish analysts assume that profit margins will shrink from 5.8% today to 5.3% in 3 years time.
The bearish analysts expect earnings to reach $228.0 million (and earnings per share of $0.71) by about May 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 bearish analyst cohort, the company would need to trade at a PE ratio of 234.7x on those 2028 earnings, up from 221.0x today. This future PE is greater than the current PE for the US Software industry at 33.3x.
Analysts expect the number of shares outstanding to grow by 2.57% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.75%, as per the Simply Wall St company report.

Datadog Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Elevated customer concentration within AI-native cohorts, where the largest customers now drive a significant share of new revenue, introduces volatility; a slowdown or renegotiation by any of these key accounts could lead to sharp declines in revenue growth and margin stability.
Gross margins have compressed from 83.3 percent a year ago to 80.3 percent as a result of higher cloud hosting costs, spiky customer usage, and continual product expansion, which could be exacerbated by ongoing investment and increased cost of serving large customers, leading to downward pressure on net margins over time.
The company’s aggressive expansion into adjacent markets such as security, log management, and data observability exposes it to entrenched competitors and requires heavy investments in R&D and sales headcount, potentially resulting in escalating operating expenses that could outpace revenue growth and erode future operating income.
Increased customer focus on cost optimization and tighter usage cycles—as evidenced by post-COVID behavior and Datadog’s own commentary—means customers may continue consolidating or reducing monitoring spend, particularly during economic downturns, which could cause reduced retention rates and lower recurring revenue.
The proliferation of open-source alternatives and hyperscaler-native monitoring solutions, coupled with the desire for greater vendor-agnosticism and “bring your own cloud,” may intensify competitive pricing pressures, slow Datadog’s market share gains, and threaten long-term revenue growth.

Valuation

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

The assumed bearish price target for Datadog is $115.0, which represents the lowest price target estimate amongst analysts. 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 more bearish 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 $115.0.
In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $4.3 billion, earnings will come to $228.0 million, and it would be trading on a PE ratio of 234.7x, assuming you use a discount rate of 7.8%.
Given the current share price of $106.06, the bearish analyst price target of $115.0 is 7.8% 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

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

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