Datadog (DDOG) has been under a lot of pressure with investors worried about the implications of AI disruption across the tech space. The stock is down 6.5% in 2026. Nerves have sparked a widespread sell-off in recent weeks, but this could be a great opportunity for retail investors to pick-off stocks unfairly discounted, and Datadog is one of them, according to analysts at both Needham and Evercore ISI.
They believe the cloud and datacentre performance monitoring tech provider is well positioned to capitalise on accelerating AI opportunities following its recent analyst day in New York.
Needham reiterated its ‘buy’ rating while cutting its price target to $155 from $220, citing multiple compression rather than weakening fundamentals. Multiple compression is where PEs decline despite stable earnings estimates.
| Datadog (DDOG) | Price: $125.20 (-6.5% ytd) | Market cap: $43.90bn |
The analyst revised target implies 24% upside from the 16 February close of $125.20 and is based on 13x enterprise value to its 2026 revenue forecast.
Growing AI traction
The firm highlighted Datadog’s growing traction in AI-driven workloads. Management said its Bits AI SRE Agent has conducted more than 100,000 investigations since launch, with over 2,000 customers either trialling or paying for the service as of January 2026.
AI-native customers accounted for 11% of revenue in calendar 2025, up from 5% in 2024 and 2% in 2023. 14 of the top 20 largest AI-native companies now use the platform.
Total revenue reached $3.43 billion in fiscal 2025, up 28% year-on-year, while annual recurring revenue approached $4 billion exiting the year. Roughly 75% of net-new ARR came from existing customers through expansion and cross-selling, underscoring the company’s ‘land and expand’ strategy. Customers spending more than $10 million annually rose to 34, and overall customer count climbed to 32,700.
Evercore ISI described Datadog as a ‘fully unified, multi-product platform’, arguing its shared telemetry foundation across observability, security and digital experience monitoring creates a durable competitive moat. The analyst said Datadog is leveraging trillions of data points and domain-specific AI models to move toward ‘predictive and ultimately autonomous operations.’
Security opportunity
Security remains an expansion opportunity. While more than 70% of million-dollar+ customers have adopted at least one security product, security accounts for only 2% of ARR from those large accounts.
Both analyst firms pointed to heavy R&D investment – around 30% of revenue – as a long-term advantage. Needham forecasts 2026 revenue of $4.1 billion, while Evercore expects ‘mid-to-upper 20%’ growth longer term.
While Datadog stock may remain tied to broader market sentiment in the near term, the analysts argue that the company is increasingly positioned to monetise AI both from AI-native customers and enterprises managing AI workloads in production.
Koyfin consensus projects 20% average sales growth over the next three years, and EPS accelerating to match that from 2027. A 12-month rolling PE below 30 is at multi-year lows versus a strengthening free cash flow profile.
Sentiment may hold sway over fundamentals for now, but this is a company that has consistently beaten quarterly forecasts going back to 2022, including recent Q4 and full year 2025.
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