Datadog’s stock (DDOG) experienced a 3% rise in premarket trading on Tuesday following an upgrade from Wells Fargo. The firm upgraded the stock to Overweight from Equal Weight, citing the belief that cost optimization is reaching its end and Datadog has several growth drivers for FY24.
These drivers include vendor consolidation, security cross-sell, and Gen AI. The analysts believe that Datadog has many ways to drive upside in FY24, including vendor consolidation, security cross-sell and Gen AI.
The reasons, according to the analysts, are that:
Cloud cost optimization is coming to an end which should drive consumption;
Datadog is winning larger deals as customers consolidate vendors, and larger deals have an outsized impact on bookings;
In addition, the analysts noted that Datadog has a large opportunity to cross-sell security solutions to existing customers;
Gen AI workloads could account for 10% of annual recurring revenue, or ARR, in FY25;
and the company’s plan to accelerate hiring in FY24 should steer growth in FY25 and beyond.
Wells Fargo also raised the price target on DDOG to $150 from $130.
It is important to note that Seeking Alpha’s Quant Rating system gives Datadog a Hold rating, while the Seeking Alpha authors’ average rating is more positive with a Buy. Additionally, the average Wall Street analysts’ rating is Buy.
This suggests that there is a range of opinions on Datadog’s stock, with some analysts being more optimistic than others. However, the overall sentiment is positive, with many analysts believing that Datadog has a lot of growth potential.
