Artificial intelligence (AI) continues to fuel key technology players, with digital observability service Datadog (NASDAQ:DDOG) on the receiving end of bullish momentum. Earlier Tuesday, analysts at Wolfe Research upgraded DDOG stock to “outperform” from “peer perform,” citing a shifting competitive backdrop. In response, shares gained nearly 5% in the late morning hours.
According to a Seeking Alpha write-up, Wolfe analysts emphasized that they focused not on valuation but on a reassessment of the underlying core fundamentals. Initially, they tagged DDOG stock as “peer perform” because their research suggested that the company may suffer from declining growth by macro events, optimization, competition and go-to-market (GTM) execution.
However, following their recent check, the experts noted that optimization headwinds have been subsiding while competition has also been easing. As well, GTM execution showed signs of improvement. And the big catalyst focuses on generative AI tailwinds, which just might make Datadog the fastest-growing software company.
Wolfe assigned a price target of $140 on DDOG stock, implying nearly 20% upside potential from the time-of-writing price.
Optimistic View Piques Interest in DDOG Stock
Undeniably, AI-focused enterprises captured the limelight of Wall Street. For DDOG stock, Tuesday’s rally takes shares just over 62% in terms of year-to-date performance. Further, the upside managed to negate prior volatility, with DDOG moving up over 29% in the past 365 days. While concerns about an overheated sector exist, for now, Datadog continues to hold a hot hand.
Even better for those holding a bullish position, Wolfe shows little sign of hedging their updated opinion. For example, the company’s revenue growth projection for end of fiscal year 2023 increased by 25%, in line with the Street. For fiscal 2024 and 2025, Wolfe raised its sales estimate by 28% and 32%, respectively. These figures clock in above the Street’s consensus targets.
Notably, Wolfe analysts also stated that despite operating under “cost-cutting obsessed macro environment,” engineers cannot do without access to Datadog, according to a quote provided by CNBC. That’s significant, because while mass layoffs have spread to other sectors, the tech sector continues to suffer the brunt of the damage.
It’s possible, then, that DDOG stock can rise above the muck as the industry gravitates toward its services.
Why It Matters
According to TipRanks, analysts peg DDOG stock as a consensus strong buy. This assessment breaks down as 18 buys, five holds and zero sells. However, their average price target lands at $105.16, implying over 10% downside risk.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
