The Nasdaq Composite index has entered correction territory, dropping 12% from its high. Amid this, Datadog, a cloud observability platform now pivoting to AI, has seen its stock drop 45% but remains a compelling buy according to Wall Street. Its strong revenue growth, expansion into AI, and favorable analyst ratings suggest a positive trajectory for investors.
The Nasdaq Composite index, comprising nearly all stocks listed on the Nasdaq, recently experienced a noteworthy drop of 12% from its record high, entering correction territory after a stunning 28% rise in 2024 driven by artificial intelligence (AI) sector gains. Historically, such corrections present lucrative opportunities for stock purchases, as U.S. markets typically rebound to new heights.
Among the stocks affected by this downturn is Datadog (DDOG), a cloud platform that has transitioned into the AI landscape. Currently down 45% from its all-time peak during the 2021 tech boom, Datadog’s decline hasn’t dimmed Wall Street’s optimism; analysts overwhelmingly recommend it as a buy, highlighting strong future potential.
Datadog serves a diverse range of industries—gaming, finance, retail—with its cloud observability platform. For instance, Sony utilizes it to seamlessly manage its PlayStation Network across global offices, mitigating technical issues for over 94 million monthly users. Similarly, retailers can quickly identify and resolve website outages, preventing customer dissatisfaction and lost sales through timely alerts.
The company is aggressively expanding its AI capabilities. It launched an observability tool targeting large language models (LLMs), designed to help developers address technical challenges and monitor expenses. As LLMs grow in complexity, such tools will be vital for organizations relying on AI technologies to remain competitive.
By year’s end, Datadog boasted 30,000 total customers, with 3,500 adopting AI products—a remarkable 75% jump from the beginning of 2024. The financial impact is evident in its $2.68 billion revenue for the year, representing a robust 26% year-over-year growth and indicating a significant uptick in AI-generated revenue.
In the fourth quarter of 2024, Datadog revealed that revenue from AI customers made up 6% of its total, doubling from the previous year. Cost management bolstered profitability, with GAAP net income rising 278% to $183.7 million and non-GAAP net income reaching $653.8 million—a 41% increase.
With a current price-to-sales (P/S) ratio of 13.9, Datadog’s valuation appears appealing compared to its historical average of 28.7. Although the 2021 peak valuation was excessively high, its current standing suggests potential for upward movement, attracting positive projections from Wall Street across multiple analysts with no sell recommendations.
Analysts cite an average price target of $161.74 for Datadog, hinting at a potential 54% jump from current trading levels, and the highest forecast points to soaring to $230—an eye-opening 120% increase. Given that a vast majority of companies are exploring AI in various functions, demand for Datadog’s observability tools is projected to surge as businesses adopt AI as universally as cloud computing. Thus, the current Nasdaq correction could serve as a golden opportunity for investors to acquire Datadog stocks for long-term portfolio gains.
In conclusion, Datadog presents a compelling investment opportunity amid the Nasdaq correction. With its robust growth in the AI domain and analysts overwhelmingly favoring its stock, investors are encouraged to consider adding Datadog to their portfolios. As demand for its observability tools is poised to rise alongside the increasing integration of AI across businesses, Datadog stands ready for a promising future.
Original Source: www.fool.com
