The S&P 500 is extensively thought to be essentially the most complete gauge of the U.S. inventory market, made up of the five hundred main publicly traded firms within the nation. Given the in depth attain of the companies that comprise the index, it’s hailed as essentially the most dependable benchmark of total inventory market efficiency. To be thought of for admission to the S&P 500, an organization should meet the next standards:
Be a U.S.-based firm
Have a market cap of at the very least $20.5 billion
Be extremely liquid
Have at the very least 50% of its excellent shares accessible for buying and selling
Be worthwhile over the previous 4 quarters in combination
Datadog(NASDAQ: DDOG) is the newest addition to the S&P 500, scheduled to hitch the benchmark on July 9. That makes it certainly one of solely 5 firms to make the minimize thus far this 12 months. Since its preliminary public providing (IPO) in late 2019, Datadog has soundly thrashed the market, producing features of 315%, in comparison with simply 109% for the S&P 500 (as of this writing). The inventory value features have been fueled by its sturdy underlying fundamentals, as its income has jumped 694% and web revenue has soared 2,670%.
But, regardless of the inventory’s spectacular efficiency and the corporate’s sturdy observe document of development, many consider the runway forward is lengthy for Datadog. Let’s look at the chance forward and why Wall Avenue considers the inventory a robust purchase regardless of its premium valuation.
Picture supply: Getty Pictures.
The digital transformation is ongoing, pushed by the continued adoption of cloud computing and the rising use of synthetic intelligence (AI). Many firms are closely reliant on their digital presence, and so they want a approach to frequently monitor their web sites, apps, servers, and different cloud-based methods to make sure they keep up and working.
That is the place Datadog is available in. The corporate’s subtle monitoring and analytics platform constantly tracks cloud-based enterprise methods, processes hundreds of thousands of information factors each hour, and notifies builders of points earlier than they lead to essential downtime. Datadog’s software-as-a-service (SaaS) instruments go additional, attending to the basis of the issue to assist forestall it from recurring.
Datadog boasts a prolonged record of business accolades that underscore the energy of its monitoring and safety options. It was chosen as a pacesetter within the 2024 Magic Quadrant by Gartner for observability platforms. It was additionally named within the Forrester Wave report for synthetic intelligence ops platforms (AIOps) for the second quarter of 2025. There are extra examples, however you get the purpose.
Do not take my phrase for it. Datadog’s most up-to-date outcomes paint a convincing image. Within the first quarter, income of $762 million grew 25% 12 months over 12 months, leading to adjusted earnings per share (EPS) of $0.46. Maybe as importantly, the corporate’s free money movement continues to march larger, rising to $244 million, a rise of 30%.
The sturdy monetary outcomes had been fueled by equally sturdy enterprise execution. Datadog’s buyer base elevated to 30,500, up 9%, whereas clients spending $100,000 in annual recurring income (ARR) jumped 13% to three,770. Moreover, current clients are increasing their relationships:
83% of shoppers are utilizing two or extra merchandise, up from 82%.
51% are utilizing 4 or extra merchandise, up from 47%.
28% are utilizing six or extra merchandise, up from 23%.
13% are utilizing eight or extra merchandise, up from 10%.
This land-and-expand technique, mixed with the introduction of recent merchandise — notably these targeted on the adoption of AI — bodes nicely for Datadog’s future.
Datadog lowered its steering earlier this 12 months in response to the on-again, off-again tariffs, however Wall Avenue stays bullish. Of the 46 analysts that coated the inventory up to now in July, 38 price it a purchase or sturdy purchase, 8 label it a maintain, and not one recommends promoting.
Analysts at Loop Capital are among the many most bullish, sustaining a purchase score and $200 value goal on the inventory, which suggests potential upside of 48% for buyers, in comparison with the inventory’s closing value on Wednesday. The analysts cite Datadog’s development trajectory and rising whole addressable market (TAM) — which the corporate believes will hit $175 billion by 2034 — as the inspiration for his or her optimistic name. Moreover, they consider Datadog’s free money movement will climb to $7.9 billion over the approaching decade, which helps illustrate the corporate’s long-term development potential.
To be clear, Datadog has by no means been low-cost. The inventory is at present promoting for simply 76 occasions subsequent 12 months’s earnings and 14 occasions subsequent 12 months’s gross sales. Nonetheless, essentially the most generally used valuation metrics battle with high-growth firms, and Datadog isn’t any completely different. When measured utilizing the extra applicable ahead value/earnings-to-growth (PEG) ratio, the a number of is available in at 0.4; any quantity lower than 1 is the usual for an undervalued inventory.
Given its lengthy historical past of development, sturdy secular tailwinds, and Wall Avenue’s bullish take, I’d submit that Datadog is a purchase.
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Danny Vena has positions in Datadog. The Motley Idiot has positions in and recommends Datadog. The Motley Idiot recommends Gartner. The Motley Idiot has a disclosure coverage.
