Datadog stock jumps after Wolfe upgrades on easing competition, gen AI opportunity
PeskyMonkey
Datadog (NASDAQ:DDOG) stock rose ~5% on Tuesday after Wolfe Research upgraded the shares to Outperform from Peer Perform ahead of the company's Dash conference (Aug. 2) and Q2 earnings (Aug. 8).
The firm has set a price target of $140 on DDOG.
Wolfe analysts noted that they were upgrading the company not due to valuation, but because their views on the core fundamentals have changed.
The analysts added that when they initially placed their rating as Peer Perform, their diligence indicated decelerating growth steered by macro, optimization, competition and even GTM execution. While growth did slow materially (from 63% in '22 to ~25% consensus for '23) the valuation has expanded.
The analysts said that their checks indicate that optimization headwinds are subsiding, competition is easing, GTM execution has improved, and Generative AI tailwinds could make DDOG the fastest growing software company.
The analysts noted that they are constructive on Datadog because their checks this quarter were very good; their worries regarding disruptive competition have eased; and they see meaningful upside to numbers from Generative AI offerings and renewed Cloud consumption tailwinds.
The firm has raised its numbers for DDOG's revenue growth to 25%/28%/32% in FY23E/24E/25E above previous estimates, in-line with street for CY23, and above in CY24 and CY25, wherein the firm sees more AI impacts. The firm added that its new estimates are still very conservative (Datadog can hit FY24 estimates on flat new current billings dollars).
The analysts see catalysts in the form of hyperscaler earnings (stabilizing cloud consumption), Datadog's Dash user conference (new AI product launch), and Q2 earnings where they see solid upside.
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