Datadog, a leading provider of IT monitoring and analytics tools, has seen a significant increase in its stock prices following an upgrade from Wolfe Research analyst Alex Zukin. Zukin has raised his rating on the stock to Outperform from Peer Perform and set a price target of $140, suggesting a potential upside of 25% from current levels. The stock is currently trading around $117.04, representing a year-to-date gain of 59%.
In the enterprise software industry, Datadog has established itself as one of the fastest-growing and most expensive stocks. While its current valuation is slightly lower than that of competitors Snowflake and MongoDB, Zukin emphasizes that his more positive outlook stems from a belief that the company's core fundamentals have undergone a transformation.
Despite the cost-cutting environment, Zukin notes that engineers heavily rely on Datadog's observability software, which provides crucial information about network performance. According to discussions with customers, this software remains an indispensable tool in the software engineer toolkit.
Zukin also suggests that competition in the IT monitoring sector is easing and highlights that Datadog's execution has significantly improved. Although the company had been affected by spending optimization in the cloud computing industry, this trend is now subsiding.
Considering the improving business conditions and the growing prominence of generative AI, Zukin predicts that Datadog has the potential to become the fastest-growing software company in the market.
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