3 Reasons Datadog Stock Is Still a Top Artificial Intelligence Buy Right Now

Core Viewpoint - Datadog is experiencing a frustrating stock performance despite strong growth momentum in the cloud-computing sector, particularly in observability and monitoring solutions driven by AI demand [1][2]. Group 1: AI-Powered Growth Opportunity - Datadog serves as a central data hub, providing real-time visibility across technology stacks, integrating data from over 900 software applications to enhance efficiency [4]. - The rise of data-intensive AI workflows is a significant growth driver, with Datadog actively integrating AI tools, including its Bits AI generative assistant, to enhance automation and intelligent analysis [5]. - The public cloud services market is valued at $600 billion and is expected to nearly double by 2028, with a 20% compound annual growth rate (CAGR), presenting substantial opportunities for Datadog [6]. Group 2: Robust Operating Tailwinds - In the first quarter, Datadog's revenue grew by 25% year over year to$ 762 million, exceeding Wall Street's expectations of $741.5 million, with adjusted earnings per share (EPS) of$ 0.46 also surpassing estimates [7]. - The company has around 30,500 customers, with 3,770 generating over $100,000 in annual recurring revenue (ARR), and a notable 110% dollar-based net retention rate indicates increased customer spending [8]. - Demand for AI solutions is strong, with the number of customers using its large language model (LLM) Observability product more than doubling in six months, supported by strategic acquisitions like Metaplane and Eppo [9]. Group 3: Free-Cash-Flow Momentum - For the full year 2025, Datadog targets revenue between$ 3.215 billion and $3.235 billion, reflecting a growth rate of 20% to 21% from the prior year, with EPS estimates of$ 1.67 to $1.71 indicating strong profitability [10]. - Free cash flow reached$ 833 million over the past year, surging 39% from year-end 2023, supporting the stock's premium valuation [10]. Group 4: Competitive Positioning - Datadog shares trade at a forward price-to-earnings (P/E) ratio of 64, which is high compared to the broader market but attractive relative to other high-growth software infrastructure peers [11]. - Compared to peers like CrowdStrike and Cloudflare, which have a forward P/E above 100, Datadog's unique blend of observability and cybersecurity capabilities offers broader use cases [12]. Final Thoughts - Datadog's AI-driven growth aligns with high-level themes in technology and cloud computing, making it a compelling addition to diversified portfolios [14].