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Datadog Inc.’s monitoring tools appears ever more essential to the company’s user base, and that’s one reason Wolfe Research analyst Alex Zukin has warmed to the stock.
“Even in a cost-cutting-obsessed macro environment, engineers simply cannot live without their Datadog,” he wrote in a note to clients late Monday as he upgraded the shares to outperform from peer perform and established a $140 target price.
Datadog shares
DDOG,
were up more than 3% in Tuesday’s premarket action after closing Monday at $111.49.
Zukin previously worried about a growth deceleration for Datadog that ended up manifesting quite sharply. But he expects the company to face a rosier backdrop going forward.
See also: Datadog stock rallies after analyst says company ‘can deliver a strong beat’
His industry conversations suggest “optimization headwinds are abating, competition is easing, [and go-to-market] execution has improved.” Meanwhile, the company could benefit from the wave of interest in generative artificial intelligence — so much so that it could become “the fastest growing software company.”
Zukin called out “very good” channel checks ahead of the company’s Aug. 8 earnings report, though there could be some stock catalysts related to hyperscaler earnings if the big cloud-computing companies indicate that consumption is getting more stable.
Bernstein analyst Peter Weed wrote last week that web metrics for Amazon.com Inc.’s AWS cloud-computing service historically have offered some clues about Datadog trends, and they signal a potential quarter-over-quarter bottom in engagement during the second quarter.
More from MarketWatch: Amazon finally is nearing a bottom on this key measure, analyst says
“Perhaps we are seeing a bottom emerging (assuming no other macro effects kick in), and maybe the earliest signs of some modest positive momentum in engagement,” Weed wrote.
He also commented that “AWS revenue has historically lagged web metrics by [about a quarter], which means we can even look further into the future towards Q3 and whether a rebound may start to show.”
Weed had an outperform rating and $127 target price on shares of Datadog.
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