Following changes to price targets from multiple analysts, Datadog, Inc. (NASDAQ:DDOG) climbed 7.7%. On July 28, 2026, analysts at Morgan Stanley, BTIG, and Citi raised their price targets on Datadog to $300, $289, and $300, respectively, reflecting changes between 11%-33%, while maintaining bullish ratings. Price targets from analysts usually come after a stock’s fundamentals have already changed. So, what needs to be watched is not the PT shifts, but the composition of Datadog’s growth. Assessing what is actually driving that growth gives a clearer picture heading into the August 6 earnings report.
The AI Labs Are the Marginal Buyer
In the first quarter, the company recorded a high revenue of over $1 billion – a 32% increase year-over-year. Total annualized revenue run-rate (ARR) also exceeded $4 billion. Particularly, the count of customers spending at least $100,000 annually rose 21% to roughly 4,550.
The core driver lies in customer composition. Datadog’s non-AI-native customers grew in the mid-20s percent range, meaning the remaining growth is largely driven by AI clients. Notably, five AI-native customers now contribute over $10 million in ARR. These are model developers, and as they scale training and inference, their observability spend increases accordingly. Datadog has quietly transitioned from a standard software-monitoring vendor to a usage-based toll on AI computing infrastructure. This transition is basically supporting higher price targets among analysts.
Priced for the Flywheel to Keep Spinning
The bullish case comes with a steep valuation. Datadog, Inc. (NASDAQ:DDOG) is trading at approximately 106 times forward earnings and 25 times sales. For the stock to keep performing, the AI flywheel has to run uninterrupted. But at this multiple, it faces two clear risks. The first is concentration. A small group of AI labs is driving the company’s incremental growth. The premium pricing narrative would be put into jeopardy if any of these AI labs were to renegotiate, optimize usage, or move toward internal monitoring tools. The second risk is durability. AI-native spending is consumption-based, which would stabilize as customers mature. Meanwhile, short interest at 3.86% is modest, indicating that bearish positioning is limited, which leaves little room for further squeeze-driven upside.
Bottom Line
The price targets reflect expectations. The numbers that matter will arrive in the upcoming August 6 earnings call. One disclosure to consider beyond the headline beat is Datadog, Inc.’s (NASDAQ:DDOG) AI-native ARR trend and whether this cohort continues widening the growth gap. While Datadog is the cleanest listed proxy for AI-usage intensity in enterprise software, which justifies a valuation premium, the 106 times forward earnings driven primarily by five clients still demands caution. It is best to verify the compounding cohort growth in the next print before the purchase, instead of chasing analyst expectations or sudden forward jumps.
While we acknowledge the risk and potential of DDOG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DDOG and that has 10,000% upside potential, check out our report about this cheapest AI stock.
READ NEXT: AMD Fell 8% as China Unveils New Technology — the Real Risk Is the Multiple, Not the Lithography and The Market Thinks Texas Instruments (TXN) Is a Boring Analog Chipmaker; AI Data Centers Disagree
Disclosure: None. Follow Insider Monkey on Google News.
Hedge Fund Resource Center