Bank of America on Thursday announced the upgrade of Datadog, Inc. (NASDAQ:) to Buy from Neutral, with an increased target price of $155, from the previous price of $143. The company cited Datadog's strong performance and potential growth opportunities, saying it is “establishing itself as the next great quality stock.”
Datadog has been recognized for its potential to become a leading large-cap stock, the bank noted. With an estimated $53 billion market opportunity, Datadog boasts a robust portfolio of 22 products and offers an attractive value proposition for those looking to consolidate spending and adopt cutting-edge technology.
Bank of America expects Datadog to maintain its 40+ base, 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 the Datadog website in April, representing the strongest growth in nine quarters. Additionally, Q1 2024 saw the highest new spending from existing customers in five quarters, signaling the end of improvements and strong demand that could lead to revenue growth.
Looking ahead, the DASH Customer Conference, scheduled for June 25-26, is expected to be the next catalyst for Datadog. The event is expected to showcase how the company is integrating next-generation AI topics. Datadog's active discussion of its AI exposure, which currently stands at 3.5% of its annual recurring revenue, is seen as just the beginning of its journey in AI, which is expected to be an important driver of growth.
“Since its IPO, Datadog has delivered very consistent upside to its revenue and operating margin guidance,” analysts at Bank of America said. 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 outperformance and upside performance.