On Thursday, Bank of America announced an upgrade of Datadog, Inc. (NASDAQ:DDOG) to Buy from Neutral, with an increased price target of $155, up from the previous $143. The firm cited Datadog's solid performance and potential growth opportunities, stating it is "establishing itself as the next high quality large cap stock."
The bank noted that Datadog has been recognized for its potential to become a leading large-cap stock. With an estimated $53 billion market opportunity, Datadog boasts a robust suite of 22 products and offers an attractive value proposition for those looking to consolidate spend and adopt cutting-edge technology.
Bank of America expects Datadog to maintain a Rule-of-40+ profile, indicating strong revenue growth and free cash flow margins.
The upgrade comes after a report showing strong year-over-year growth in user engagement on Datadog's website in April, marking the strongest growth in nine quarters. Additionally, the first quarter of 2024 saw the highest new spending from existing customers in five quarters, suggesting an end to optimizations and a strong demand that could lead to revenue growth.
Looking ahead, the customer conference DASH, scheduled for June 25-26, is anticipated as the next catalyst for Datadog. The event is expected to showcase how the company is integrating with next-generation AI themes. Datadog's active discussion of its AI exposure, currently at 3.5% of its Annual Recurring Revenue, is seen as just the start of its journey in AI, which is poised to be a significant growth driver.
"Since its IPO, Datadog has been delivering pretty consistent upside to its revenue and operating margin guidance," said analysts at Bank of America. While the magnitude of this upside has moderated, they add that the company's conservative guidance approach and positive demand outlook are expected to support its continued beat-and-raise performance.