Premium Shares Suffering a 37% Drop, Recommended for Massive Purchase by Financial Experts on Wall Street
Premium Shares Suffering a 37% Drop, Recommended for Massive Purchase by Financial Experts on Wall Street
The tech sector is thriving in 2024, spearheaded by some of the world's largest corporations. As of now, the Nasdaq-100 index is up by 22% year-to-date, with Nvidia shares surging 182% and Meta Platforms shares increasing 57%.
However, the smaller tech sector isn't performing as robustly. Many stocks are still trading below their 2021 record highs. For instance, Datadog's stock, identified by its ticker symbol DDOG (-2.36%), has only seen a 4% increase, and it's still sitting about 37% below its all-time high.
Datadog is a leading provider of essential cloud monitoring software, with an expanding portfolio of AI products driving rapid growth. According to reports from The Wall Street Journal, 44 analysts covering Datadog stock have assigned it the highest-possible buy rating.
Here's why investors might want to consider purchasing the stock while it's still gaining momentum.
Datadog's software is crucial for modern organizations
Datadog developed a cloud observability platform to assist businesses in navigating the digital age. It continually monitors infrastructure to identify technical problems before they affect the customer experience.
For instance, a retailer might be unaware of its website being down for a specific user base in a particular country until it notices a drop in sales. However, if it uses Datadog, this issue could be flagged immediately. The same applies to the 29,200 businesses that rely on Datadog, including those in finance, entertainment, media, and numerous other industries.
Datadog is now expanding into the AI space. It introduced Bits AI last year, a virtual assistant designed to accelerate workflows on its observability platform. It can instantly create incident summaries and provide in-depth explanations, saving managers countless hours of manual investigative work. Bits AI can even offer technical suggestions to prevent issues from recurring.
The company also developed a new observability platform for large language models (LLMs), the foundation of every AI chatbot or virtual assistant. With Datadog's tool, developers can quickly troubleshoot technical problems, monitor costs, and even track response quality to ensure the model is delivering appropriate outputs for the end-user.
The LLM observability platform seamlessly integrates with OpenAI, Anthropic, Microsoft Azure, and Amazon Bedrock, making setup a breeze. As more companies integrate AI into their daily operations, observability tools will become increasingly vital to ensure customers and employees are receiving accurate and satisfactory information.
Rapid growth in AI revenue
Datadog recorded a record $690 million in revenue during the third quarter. This was a 26% increase from the previous year's period and significantly surpassed management's guidance of $664 million. Consequently, management increased its full-year 2024 forecast for the third consecutive time, now expecting $2.66 billion in revenue at the high end of its range.
AI played a significant role in the strong Q3 results. Datadog reported that AI-native customers accounted for over 6% of the company's total revenue during the quarter, more than doubling from 2.5% in the previous year's period. Furthermore, around 3,000 of Datadog's 29,200 customers were using one or more AI integrations, which had grown from 2,500 just three months earlier, indicating rapid adoption.
Datadog is also making strides on the profitability front. Over the last two years, it has shifted from a growth-at-all-costs strategy, often leading to substantial losses, to a more sustainable approach, focusing on intelligent expense management to generate profits. During Q3, the company recorded net income of $51.7 million, a 128% increase year over year.
The business has now generated $138.1 million in net income through the first three quarters of 2024, a substantial change from the $5.4 million net loss it recorded in the same period last year.
Wall Street is exceptionally optimistic about Datadog stock
Out of the 44 analysts tracked by The Wall Street Journal, 32 have given Datadog stock the highest possible buy rating. Eight others are in the overweight (bullish) camp, while the remaining four recommend holding. Not a single analyst recommends selling.
The analysts have an average price target of $153.79, suggesting potential growth of 22% over the next year for Datadog stock, as of this writing. However, the street-high price target of $230 implies the stock could surge by an impressive 83%.
However, it's essential to note that Datadog isn't exactly cheap. Its stock trades at a price-to-sales (P/S) ratio of 19.1, notably more expensive than a basket of other enterprise software and cloud stocks.
That said, Datadog has always traded at an elevated valuation. Its P/S ratio of 19.1 is actually a 35% discount to its average P/S ratio of 29.4 since it went public in 2019.
Monitoring solutions are set to become indispensable for businesses venturing into AI, mirroring the prevalent usage of these tools in companies with intricate cloud architectures. A survey conducted by McKinsey and Company in September revealed that an impressive 72% of organizations have integrated AI into at least one business operation, a figure that is poised to escalate further.
This opens up a vast potential customer base for Datadog, a market that could persist for years, rendering it an excellent investment option for long-term investment portfolios.
In light of the strong performance in the tech sector and the surge in AI adoption, some financial analysts might suggest considering Datadog's stock for long-term investment portfolios due to its potential in the growing market of monitoring solutions for AI-integrated businesses. Given Datadog's expanding portfolio and increasing AI revenue, investors may find it an appealing opportunity for future finance gains.
Given the analysts' bullish outlook and the substantial growth potential indicated by their price targets, investors interested in the finance and investing landscape might find Datadog a compelling choice to diversify their investing portfolio. Because of Datadog's vital role in helping modern organizations navigate the digital age and its expanding presence in the AI sector, the company could continue to deliver value to its investors in the years to come.