J.P. Morgan Datadog (DDOG.US): Hyperscalers' AI Labs Fetching New Workloads; Raising Street-High Target
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J.P. Morgan raised its target price on Datadog (DDOG.US) from $180 to $230, representing the highest target on Wall Street, while maintaining an Overweight rating. The firm asserts that hyperscale cloud providers are actively utilizing Datadog to monitor new artificial intelligence workloads, establishing a core growth driver for the company.
Despite the stock's existing momentum, analysts argue that the AI-driven acceleration is just beginning. AI-related revenue is projected to constitute 15-20% of total revenue in 2026, expanding further in 2027. This revenue is expected to scale rapidly as complex AI training and inference workloads transition from experimental phases to full production environments, requiring Datadog's end-to-end observability and security solutions.
The upward target revision is underpinned by a higher 12x EV/Sales multiple on 2027 estimated revenue, up from 10x. J.P. Morgan projects total revenue will reach $3.2 billion in 2026 and $4 billion in 2027, exceeding consensus estimates. Management notes that acquiring AI workload customers incurs minimal incremental cost, as these deployments naturally expand within Datadog's existing client base.
The firm advises investors to accumulate shares on any short-term pullbacks. While acknowledging potential risks from an AI spending slowdown, heightened competition, and macroeconomic headwinds, J.P. Morgan believes the long-term upside potential remains significantly underpriced by the market.