Datadog (DDOG) has come back into focus after a flurry of AI related news, including a partnership with Sakana AI and new commentary on its role in enterprise software.

Despite a series of AI focused headlines and partnerships, Datadog’s recent share price performance has been weak, with a 30 day share price return of 13.42% and a 90 day share price return of 29.09%. Over the longer term, the 3 year total shareholder return of 45.44% and 5 year total shareholder return of 36.20% show that earlier investors have still seen gains, even as recent momentum has faded.

If Datadog’s AI push has caught your attention, it may be worth checking other names riding similar themes through our screener of 34 AI infrastructure stocks for more ideas.

With the shares down over the past year despite ongoing AI headlines and new partnerships, the key question now is whether Datadog is quietly trading at a discount or whether the market is already factoring in much of its future growth.

Most Popular Narrative: 46.3% Undervalued

Datadog’s most followed narrative pegs fair value at about $208 per share, well above the last close of $111.96. This puts the focus firmly on whether its long term growth and profitability assumptions are realistic.

Ongoing product innovation (e.g., autonomous AI agents, enhanced security modules, expanded log and data observability) is increasing platform breadth and relevance, providing cross-selling opportunities and driving higher average revenue per user and net retention rate. This in turn improves recurring revenue predictability and gross margins.

Curious what kind of revenue run rate, margin expansion and future earnings multiple are baked into that $208 fair value tag? The narrative leans on rapid earnings growth, richer profitability, and a premium profit multiple that assumes Datadog keeps compounding its role in observability and security. The exact mix of growth, margin and valuation expectations may surprise you.

Result: Fair Value of $208.49 (UNDERVALUED)

However, that upside view still hinges on Datadog defending its pricing against cheaper rivals and on avoiding any pullback in spending from a few large AI customers.

Another Angle On Valuation

That 46.3% “undervalued” label sits awkwardly next to how richly Datadog trades on sales. The current P/S of 11.6x is much higher than the US Software industry at 3.3x, above peers at 7.9x, and above the fair ratio of 10.2x that markets could eventually lean toward. If sentiment cools further, does that premium multiple give you enough comfort?

Next Steps

If this mix of optimism and caution feels familiar, now is a good time to look through the numbers yourself and test the narrative against your own expectations. You can also round out that view by checking the 2 key rewards and 2 important warning signs we have compiled for Datadog.

Looking for more investment ideas?

Do not stop at one stock when you can scan the market for other clear setups that fit your style and keep your watchlist working harder for you.

• Zero in on potential mispricings by reviewing our list of 46 high quality undervalued stocks that pair quality fundamentals with more modest expectations.
• Strengthen your income stream by checking out 15 dividend fortresses that focus on higher yielding companies with the potential to anchor a payout focused portfolio.
• Stay on the front foot by reviewing our 74 resilient stocks with low risk scores when you want ideas that prioritise resilience and more measured risk profiles.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.