Citigroup Boosts Datadog (DDOG) Target; AI Growth Drives Hedge Fund Interest

Datadog, Inc. (NASDAQ:DDOG) is one of the best tech stocks to buy according to hedge funds. On August 18, Citigroup maintained its Buy rating on Datadog, Inc. (NASDAQ:DDOG), while increasing its price target from $165 to $170.

The company generated $826.76 million in revenue in Q2 2025, a 28.1% growth year-over-year. This stellar growth was driven by customer growth, especially in the AI-native sector. It reported an EPS of $0.46 per share, a solid beat compared to Wall Street estimates of $0.41 per share. Datadog has been working on new innovative products, which will help it cement its niche position as the fast-growing AI/cloud company.

However, the company’s margins have narrowed aggressively over the last two quarters, as the company is spending aggressively in research and development, and sales and marketing. While this may lead to long-term growth, it’s hurting valuations currently. The stock is trading at a forward P/E ratio of 62.72x. Meanwhile, hedge funds have been loading up on DDOG over the second quarter of this calendar year. As of Q2, 103 hedge funds had invested in the stock, compared to 84 in Q1.

While we acknowledge the potential of DDOG as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.