After Doubling, Is the Rally Not Over Yet? Datadog (DDOG.US) Gets Further Wall Street Bullishness Ahead of Earnings

Datadog (DDOG.US) shares have risen about 106% year to date, yet Wall Street still sees upside ahead of the Q3 report: UBS Group AG and Oppenheimer raised their price targets on the same day, citing demand for AI observability and a potential increase in spending by OpenAI. Both institutions, however, also acknowledged that valuation remains a key risk for the stock. On the price front, Datadog slipped 0.8% in Tuesday premarket trading, after closing up nearly 4% on Mondayfinishing at $280.24, up 3.93%, with a total market capitalization of about $100.6 billion and a year-to-date gain of 106.07%. The Q3 report is scheduled for release on November 4, with the analyst consensus calling for revenue of $1.14 billion and earnings per share of $0.64. Wall Street turns bullish UBS Group AG: price target raised from $280 to $320, but says outright it's "expensive" UBS Group AG analyst Karl Keirstead raised his Datadog price target from $280 to $320 while maintaining a "Buy" rating, implying about 14% upside from the previous close. He expects AI-related monitoring services to contribute more to the company's growth in 2027, and flagged the possibility of higher OpenAI spending in the second half, which would provide an additional boost to Datadog's business. The other half of the same report is a warning. UBS Group AG noted that Datadog is "expensive" relative to its expected growth: the company currently trades at about 17 times 2027 estimated revenue and 57 times free cash flow. That means if growth falls short of expectations, the stock will come under pressure. This exposure to OpenAI is both the story and the soft spot. On the Q2 earnings call, the company's Q3 guidance explicitly incorporated the assumption of "lower usage from our largest customer"; treating OpenAI again as a source of incremental growth amounts to rewriting the same variable from a subtraction to an addition, and its credibility can only be tested on November 4. Oppenheimer: price target raised from $300 to $330, expects revenue to beat consensus Oppenheimer raised its price target from $300 to $330 and reiterated an "Outperform" rating. The firm expects Datadog's Q3 revenue to exceed the current Wall Street consensus by more than 4%, and expressed confidence in the business and management's strategic execution. Based on consensus revenue of $1.14 billion, "more than 4% above" implies an Oppenheimer estimate of around $1.19 billionalready clearly above the company's own Q3 guidance range of $1.135 billion$1.145 billion. In other words, the firm is betting that the company's guidance is conservative. Bernstein's reversal: token consumption up at least 50% quarter over quarter Bernstein analyst Peter Weed upgraded Datadog from "Market Perform" to "Outperform" on October 19, raising his price target from $237 to $350. He acknowledged that his earlier judgmentthat enterprise budgets, implementation barriers and consumer saturation would suppress 2027 spendingwas too conservative: "Our imagination clearly failed us." Supporting the reversal is alternative data: enterprise token consumption at the largest AI lab grew at least 50% quarter over quarter, with smaller AI-native companies potentially growing even faster; the launch of consumer AI agents (such as Muse and Dots) has boosted user engagement and should also drive demand for observability products among traditional customers. On that basis, Bernstein raised its 2026 EPS forecast to $2.82 and expects a further rise to $4.00 in 2027, and these upward revisions assume no improvement whatsoever in the fundamentals of traditional customers. The same report also preserves the downside: Bernstein flagged signs of year-end softness in Datadog's traditional customer base (about 85% of revenue). AI-native customers are accelerating off a small base, while the much larger traditional observability business may be coolingthat is the tension within this report. The baseline ahead of earnings: high growth, thin profits, a single-customer variable To judge whether the above expectations are reasonable, the baseline needs to be laid out. In Q2 (ended June 30), Datadog reported revenue of $1.12 billion, up 36% year over year, above the upper end of its prior guidance range; Non-GAAP operating income of $257 million, a 23% margin; free cash flow of $279 million, a 25% margin; and cash and marketable securities of about $5 billion at period end. GAAP operating income was just $5 million, a GAAP operating margin of 0%, GAAP diluted EPS of $0.12, and Non-GAAP diluted EPS of $0.65 (above the $0.58 consensus). The customer mix is concentrating toward larger customers: about 4,720 customers with ARR above $100,000, up 23% from about 3,850 a year earlier, contributing about 91% of ARR; total customers were about 33,400. On product cross-selling, 58% of customers use four or more products (52% a year earlier), and 37% use six or more (29% a year earlier). The company's Q3 guidance calls for revenue of $1.135 billion$1.145 billion (up about 28%29% year over year), Non-GAAP operating income of $260 million$270 million, and Non-GAAP EPS of $0.63$0.65; full-year guidance calls for revenue of $4.45 billion$4.47 billion and Non-GAAP EPS of $2.50$2.54. Management described the guidance as conservative and said it incorporates lower usage from its largest customer. This is exactly where the disagreement lies: from 36% growth in Q2 to just 28%29% in Q3 guidance, a drop of about 7 percentage points in a single quarter, with the cause explicitly attributed to a single customer. Bernstein's October 19 report put it more bluntlythe prior downgrade was based precisely on a reduction of about $100 million in ARR from this largest "AI-native" customer (reports identified it as OpenAI). On the product side: AI is not just demand, but also a way to sell To judge whether AI is "narrative" or "orders," one must also look at what the company itself has delivered. In Q2, Datadog launched more than 100 new capabilities at DASH 2026, including those directly related to AI: the autonomous Bits AI for end-to-end incident detection, investigation and remediation; AI Guard for protecting AI agents against prompt injection and poisoning attacks; Bring Your Own Cloud, which supports deployment within customers' own environments; and Bits Agent Builder for creating custom AI agents. In the same period, the company acquired frontier AI startup Adaptive ML, moving into reinforcement learning operations. In its upgrade report, Bernstein also singled out cybersecurity demand and the company's AI agent for site reliability engineering, Scout v1.0. What these products have in common is that they don't sell computing power, but rather "who watches things once AI is running." That also explains why UBS Group AG puts the incremental contribution in 2027monitoring demand naturally lags deployment. What to watch on November 4? Three things will determine whether this "still bullish after doubling" call holds: first, whether revenue can beat consensus by more than 4%, as Oppenheimer says, meaning significantly above the company's own guidance ceiling; second, whether usage from the largest customer continues to decline or recovers, which maps directly to the OpenAI spending variable UBS Group AG mentioned; and third, whether management's characterization of 2027 can support the narrative that "AI monitoring contributes more." If all three deliver only price expectations without fundamental evidence, the valuation of 17 times 2027 estimated revenue is exactly the position UBS Group AG described as "under pressure if growth falls short of expectations." The other side: valuation, retail sentiment and divergent acquisition rumors Valuation is the most direct constraint. Datadog currently trades at a P/E (TTM) of about 560 times and a price-to-book ratio of about 23 times; the average target price of 44 institutions compiled by market platforms is about $296.91, with a high target of $350 and a low of $158an extremely wide range of disagreement. Retail sentiment, meanwhile, is moving in the opposite direction. Retail sentiment on the stock on Stocktwits has shifted from "neutral" to "bearish." The acquisition front also remains unresolved. Last week, reports said Datadog planned to expand its cybersecurity business by acquiring cloud security startup Upwind (Upwind's software can monitor cloud applications, including AI agents). But there are conflicting reports on the deal: media said on October 22 that Datadog offered nearly $4 billion and was rejected by Upwind, which is completing a $300 million funding round at a valuation of about $3.8 billion. Neither company has commented publicly, and the deal can currently only be regarded as unconfirmed market rumor.