Overview
Bernstein Research downgraded cloud‑monitoring software provider Datadog to "Market‑Perform" from "Outperform" on Monday, stating that the recent share rally has outpaced the company's improving fundamentals even as it stands to benefit from expanding artificial‑intelligence (AI) adoption.
Rating Change
The downgrade reflects Bernstein's view that the stock's valuation now incorporates much of the optimism surrounding AI demand, leaving limited upside despite the company's operational strengths.
Price Target
Bernstein increased its price target for Datadog to $226, up from $180, but this target remains below the July 2 closing price of $260.36, implying an approximate 13% downside from the current market level.
Revenue Growth Outlook
The brokerage projects that Datadog's year‑over‑year revenue growth could decelerate sharply to about 29% in the fourth quarter, compared with investor expectations for growth to stay above 30% into the following year. It also expects the company's non‑AI business, which represents roughly 85% of total revenue, to peak in the third quarter before entering a slowdown phase.
Valuation Assessment
While Bernstein raised its long‑term revenue growth assumptions by several percentage points and reiterated that Datadog could return to stronger growth once the anticipated slowdown passes, the firm believes the current market price already reflects much of that optimism, prompting the downgrade.
Sector & Demand Outlook
Bernstein highlighted recent web‑traffic indicators and channel checks that suggest a slowdown in cloud‑workload growth, citing hyperscaler capacity constraints and customers prioritising cybersecurity enhancements. Nevertheless, the broker maintains that longer‑term AI adoption will remain a key driver of Datadog's growth trajectory.