The Newest AI Stock in the S&P 500 Is Up 300% Since 2020 and It's Still a Buy Today, According to a Wall Street Analyst

Core Viewpoint - Datadog has been added to the S&P 500 index, which historically leads to stock price appreciation for newly included companies, with expectations of continued growth driven by its AI capabilities and market position [2][5][6]. Company Overview - Datadog is a software company specializing in observability software, offering a platform with around two dozen products to monitor IT infrastructure and applications, including an AI engine called Watchdog [8]. - The company has been recognized as a leader in several software markets, including observability and digital experience monitoring, by consultancy firms like Gartner and Forrester Research [9]. Financial Performance - In the first quarter, Datadog reported a 25% increase in revenue to $762 million, with a 9% rise in customers to 30,500 and a 10% increase in average spending per existing customer [10]. - Despite raising its full-year guidance, adjusted earnings are projected to decline by 7% in 2025 due to ongoing investments in R&D and sales [11]. Market Reaction and Valuation - Following its inclusion in the S&P 500, Datadog shares have risen by 13% this month, currently trading at 82 times adjusted earnings, which is considered a high valuation given the forecasted 17% annual earnings growth through 2027 [12]. - Most Wall Street analysts view Datadog as slightly overvalued, with a median 12-month target price of $140 per share, indicating an 8% downside from the current price of $152 [13].