Datadog, Inc.

(NASDAQ Global Select)
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Slightly Bullish +25

Datadog Stock Fell Nearly 12% as AI Spending Fears Hit Cloud Stocks. Its Earnings Estimates Didn’t Move

Analyst upgrade Company update AI-generated analysis

📉 Datadog shares dropped 11.5% to $235.27 on October 30 due to sector-wide AI spending fears despite no company-specific negative news.

📊 Analyst estimates for next-12-month EPS remained stable at approximately $2.65, while consensus revenue forecasts for 2026 through 2028 actually increased slightly.

🎯 The average Wall Street price target rose to $294, creating a 25% upside premium over the current stock price as sentiment improved relative to the selloff.

💼 Wells Fargo raised its price target to $325 on October 28, signaling continued confidence in Datadog's long-term prospects despite recent market volatility.

🤖 CFO David Obstler noted emerging trends where customers are moving AI workloads in-house, potentially impacting the growth rate of Datadog's high-growth AI-native customer segment.

💸 The potential near-$4 billion acquisition by Upwind appears unlikely after reports indicate the deal may have collapsed or been scaled down to a $400 million raise instead.

📅 Management guided third-quarter revenue between $1.135 billion and $1.145 billion, which aligns closely with analyst consensus estimates near $1.15 billion.

🔮 The TIKR model projects a mid-case valuation of $733 by December 2030, assuming around 21% annual revenue growth and net income margins near 29%.

⚠️ Investors are concerned that if AI-led spending slows below the projected 21% growth rate, it could undercut every scenario in the analyst forecast models.

📈 The forward P/E ratio compressed from around 103 times to approximately 89 times as the stock price fell while earnings estimates held steady.

Bullish Signals
  • Analyst sentiment improved relative to the stock price, with the average Wall Street target rising to $294, representing a 25% premium over current levels.
  • Wells Fargo raised its price target to $325 on October 28, indicating strong institutional confidence in the company's fundamentals.
  • Consensus revenue estimates for 2026, 2027, and 2028 edged up despite the significant drop in share price following peer earnings reports.
  • Management guided third-quarter revenue to $1.135-$1.145 billion, which aligns closely with consensus estimates near $1.15 billion, suggesting execution remains on track.
Risk Factors
  • Shares fell 11.5% due to sector-wide fears that AI spending will contract, creating a risk of budget cuts specifically at Datadog's high-growth AI-native customer cohort.
  • CFO David Obstler acknowledged seeing customers move AI workloads in-house rather than using external APIs, which could slow usage metrics for Datadog's AI monitoring products.
  • The likelihood of a transformative near-$4 billion acquisition by Upwind has diminished after reports suggest the deal fell through or was scaled back significantly.
Full Analysis
Datadog (DDOG) shares fell approximately 11.5% to close at $235.27 on Friday, October 30, driven by broader market fears regarding AI spending rather than any specific company announcement or earnings miss. The decline occurred despite the stock's third-quarter earnings report scheduled for Wednesday, November 4, and came after peers like Amazon and Snowflake faced similar pressure. Analyst consensus estimates for Datadog remained unchanged during this period, with the next-12-month normalized EPS holding steady at roughly $2.65. While the stock price dropped significantly, Wall Street analyst sentiment has actually improved relative to the share price. The average price target rose to approximately $294, representing a premium of about 25% over the current trading price, up from just 5% a month prior. Notably, Wells Fargo raised its specific price target to $325 on October 28, indicating that some analysts view the recent selloff as an opportunity rather than a fundamental deterioration in Datadog's business model. The article highlights a potential shift in customer behavior regarding AI infrastructure, with CFO David Obstler noting early signs that clients are moving AI workloads in-house rather than relying solely on external APIs. This trend poses a specific risk to Datadog's high-growth AI-native customer cohort, which could slow down if budget cuts materialize at these companies. Additionally, the likelihood of a previously reported near-$4 billion acquisition by Upwind has diminished after reports suggest the deal fell through or was significantly scaled back. Looking forward, management guided third-quarter revenue between $1.135 billion and $1.145 billion, which aligns closely with consensus estimates near $1.15 billion. The market's primary concern now centers on whether Datadog can maintain its high growth trajectory amidst potential AI spending retrenchment. Investors will be watching the November 4 earnings release closely to see if revenue guidance holds or if the stock price has already priced in a significant slowdown.