What Happened?
Shares of cloud monitoring platform Datadog (NASDAQ: DDOG) jumped 5.5% in the afternoon session after Wells Fargo initiated coverage of the company with an "Overweight" rating and a $190 price target.
The firm pointed to the company's group of AI-native customers as a growth driver that was not fully appreciated by the market. Wells Fargo noted that revenue from these clients, not including OpenAI, had already passed the $100 million mark. The initiation was part of a broader move by Wells Fargo, which started covering several software companies it saw as well-placed to gain from AI-related growth.
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What Is The Market Telling Us
Datadog’s shares are quite volatile and have had 16 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 8 months ago when the stock dropped 14.9% on the news that the company reported disappointing fourth quarter results and provided full-year revenue and EPS guidance below Wall Street's estimates.
Despite strong revenue growth of 25% year on year, operating margins shrunk, and the outlook suggests a slowdown in growth. Notably, the guidance implied a 10% y/y decline in net new revenue, and when combined with the weaker margins, could suggest the company is facing stronger competition to find new customers. Overall, this quarter could have been better, and the guidance is weighing on shares.
Datadog is up 5.1% since the beginning of the year, but at $150.93 per share, it is still trading 10.5% below its 52-week high of $168.65 from December 2024. Investors who bought $1,000 worth of Datadog’s shares 5 years ago would now be looking at an investment worth $1,458.
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