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.