Evercore ISI initiated coverage of Datadog, Inc. (NASDAQ:DDOG) with an Outperform rating and a $150 price target in a note Monday.
After two years of steady performance, analysts believe DataDog "has matured to a point (and grown into its valuation) so that it can become a more consistent compounder over the next 12-24 months."
The analysts at Evercore ISI highlight five key points supporting their bullish outlook:
Potential for Upside Estimates: "We believe that our/Street estimates have room for upside as consumption levels normalize and DDOG sees strong adoption from customers using multiple solutions," said the analysts. This suggests that DataDog's conservative guidance may be exceeded as market conditions improve.
Expansion into Adjacent Markets: Evercore says that DataDog's strength in observability and its platform architecture position it well to expand into adjacent total addressable markets (TAMs) such as Security, Cloud Service Management, and analytics. This expansion is expected to support around 20% growth over the long term.
Consistent Margin Expansion: The investment firm believes DDOG's efficient go-to-market (GTM) strategy should enable consistent margin expansion in the coming years.
Impact of Generative AI: While not a near-term catalyst, generative AI is expected to create the need for analyzing more data across various layers of the IT stack, aligning well with DataDog's platform strategy. Evercore believes this could serve as an additional growth vector in the long term.
Valuation Support from Growth and Stability: Evercore states that DataDog's consistent high growth (+20% revenue growth) stands out among large-cap software stocks, providing valuation support at current levels. They see the upcoming shift to CY26 estimates and potential interest rate stability further enhancing the long-term risk/reward profile.
Overall, Evercore ISI sees DataDog maturing into its valuation, with multiple factors positioning it for sustained growth and consistent performance. As such, they maintain an Outperform rating and a price target of $150, based on shares trading at 13x EV/CY26 sales.