What Happened?
Shares of cloud monitoring software company Datadog (NASDAQ:DDOG) fell 6.1% in the afternoon session after Stifel analysts downgraded the stock's rating from Buy to Hold and lowered the price target from $165 to $140. A key issue seems to be Datadog's AI potential, as Stifel sees limited upside from Datadog's existing business with OpenAI, the creator of ChatGPT. OpenAI depends on critical infrastructure and software, including semiconductor chips, cloud platforms, and even the developer operations and security tools that Datadog provides. If Datadog's role in this ecosystem isn't as strong as hoped, it could dampen the AI-driven growth narrative, which has been a major attraction for investors.
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What The Market Is Telling Us
Datadog’s shares are somewhat volatile and have had 12 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 9 months ago when the stock dropped 11.7% on the news that the company reported weak first-quarter results with billings falling below Wall Street's expectations. In addition, its new large contract wins slowed. On the other hand, revenue and EPS came in ahead of expectations during the quarter. Overall, this quarter's results seemed fairly positive, although the billings blemish means it wasn't perfect.
Datadog is down 0.1% since the beginning of the year, and at $143.52 per share, it is trading 14.9% below its 52-week high of $168.65 from December 2024. Investors who bought $1,000 worth of Datadog’s shares 5 years ago would now be looking at an investment worth $3,268.
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