Datadog, Inc. (DDOG): A Bull Case Theory

We came across a bullish thesis on Datadog, Inc. on Rijnberk InvestInsights’s Substack by Daan | InvestInsights. In this article, we will summarize the bulls’ thesis on DDOG. Datadog, Inc.'s share was trading at $136.68 as of August 29^th. DDOG’s trailing and forward P/E were 379.67   and 74.63 respectively according to Yahoo Finance.

Datadog (DDOG) has quietly become one of the most critical platforms in enterprise software, serving as the observability and security backbone for over 31,000 companies. What started in 2010 as a simple monitoring tool has evolved into a comprehensive, cloud-native platform offering visibility across infrastructure, applications, logs, user experience, and security—all from a single console. Its usage-based model creates a powerful “land and expand” dynamic, with most customers starting small and steadily adopting more of its 20+ tightly integrated modules. This breadth of offering, combined with cloud-agnostic flexibility and over 700 integrations, makes Datadog a sticky, mission-critical platform with high switching costs.

Financially, Datadog has been a standout, growing revenue at a 41% CAGR since 2020 to a $3B+ run rate, with gross margins above 80% and free cash flow margins near 30%. Its net retention rate of ~120% reflects strong module adoption, and AI workloads are adding a new growth engine—AI-native customers now contribute 11% of revenue, up sharply from a year ago. In Q2 2025, revenue grew 28% YoY to $827M, its best growth in two years, driven by expanding usage and accelerating AI-related demand.

While margins face near-term pressure from heavy R&D and stock-based compensation, operating leverage is improving over time, and the balance sheet remains strong with $3.9B in cash. The long-term outlook is excellent, as cloud migration, digital complexity, and AI adoption make observability essential. However, valuation is steep, with the stock trading at ~73x earnings, limiting near-term upside. For long-term investors, Datadog is a high-quality compounder, but patience on entry price is warranted.

Previously we covered a bullish thesis on Datadog, Inc. (DDOG) by @bigbullcap on X in May 2025, which highlighted diversified product expansion, ARR contributors, and upside to revenue guidance. The company’s stock price has appreciated approximately by 19% since our coverage. This is because adoption trends accelerated. The thesis still stands as Datadog remains resilient. Daan | InvestInsights shares a similar view but emphasizes AI-driven growth and valuation risks.

Datadog, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 84 hedge fund portfolios held DDOG at the end of the first quarter which was 83 in the previous quarter. 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.