Datadog, Inc. (NASDAQ:DDOG) watches software while it runs. When an application slows or breaks, its tools are what the engineers look at first.
The stock closed at $260.36 on October 19. It has returned 97.7% over the last 6 months, compared with an 11.6% return for the Insider Monkey Billionaire Index and 8.7% for the State Street SPDR S&P 500 ETF Trust. The business is growing quickly and earns almost nothing as reported. The share price has behaved as though only the first half of that is true.
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What Is Going Right:
Revenue rose 35.60% year on year, and it grows the way good software businesses do, by customers using more rather than buying more. Monitoring scales with how much a customer runs.
The cash is real even where the profit is not. Operating cash flow ran at $1.23 billion against revenue of $3.97 billion, and borrowings are modest enough against equity that a weak year would force nothing.
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What the Share Price Has Already Counted:
The shares have nearly doubled over six months. Nothing in the reported numbers moved that far, so the move came from what buyers expect rather than from what the company delivered.
The reported margin is the problem with that. Operating profit is 0.67% of revenue, so almost the whole of what the business earns is consumed before it reaches an owner. The gap between that figure and the adjusted one the market quotes is mostly pay issued in shares.
Consumption pricing cuts the other way too. Revenue that rises when customers run more also falls when they run less, and that is not within Datadog’s control.
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What Has to Arrive:
The price is 84.75 times what analysts expect next year. That needs the growth to hold and the margin to widen, not one or the other.
Expectations have moved further than earnings over the past six months. The gap closes when earnings catch up or when the price comes back, and the second is quicker.
Monitoring is one slice of a much larger subscription market. 10 Best SaaS Stocks to Buy According to Hedge Funds maps the rest of it.
Conclusion:
The business is doing well, and the share price has done better. Monitoring revenue tracks what a customer consumes, which is a fine way to be paid and explains the growth rate. What has not kept pace is the reported profit, since costs take almost all of it and a large charge for stock issued to staff sits among them. The price now assumes that changes. Watch the margin rather than the revenue, since revenue is the half that is already working.
Market Sentiment:
Datadog, Inc. was held by 92 hedge funds with a combined stake value of about $3.94 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 80 hedge fund holders in the previous quarter.
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.
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This article is originally published at Insider Monkey.
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