AI Push Boosts Enterprise Clientele: More Upside Ahead for DDOG Stock?

Datadog's DDOG fourth-quarter 2025 results delivered a compelling case for the cloud observability platform's deepening relevance in an AI-driven enterprise landscape. Revenues climbed 29% year over year to $953 million, surpassing the top end of its own guidance, while full-year bookings reached a record $1.63 billion, up 37% year over year, including 18 deals over $10 million in total contract value.

Growth excluding AI-native customers accelerated to 23% year over year compared with 20% in the prior quarter, confirming that demand improvement was broad-based and not concentrated in a single cohort. This signals that Datadog's AI-era relevance is permeating the wider enterprise market rather than relying solely on a narrow segment.

The enterprise opportunity appears particularly underpenetrated. As of December 2025, 48% of the Fortune 500 are Datadog customers, yet the median ARR for those accounts remains below half a million dollars — pointing to substantial room for expansion within existing relationships. Customers generating more than $100,000 in ARR reached 4,310, representing approximately 90% of total ARR, while remaining performance obligations rose 52% to $3.46 billion, driven by a higher mix of multiyear enterprise contracts. 

AI-native customer momentum remains a distinct tailwind. Datadog counts 14 of the top 20 AI-native companies as customers, with approximately 650 firms in this cohort growing at rates that significantly outpace the rest of the business. MCP server tool calls grew 11-fold in the fourth quarter compared to the third quarter, while more than 1,000 customers are now using Datadog's AI observability product, with usage increasing tenfold over six months.

Product stickiness is strengthening alongside this AI traction. At quarter-end, 84% of customers used two or more products, 55% used four or more, and 9% used 10 or more, up from just 6% a year earlier. For fiscal 2026, Datadog guided for revenues of $4.06 billion to $4.1 billion, implying 18-20% growth, with first-quarter 2026 guidance pointing to 25-26% growth. Whether the broader enterprise ramp can sustain that trajectory remains the key variable for DDOG's upside story.

How Do Dynatrace and Elastic Stack Up?

Datadog's AI-driven enterprise expansion puts it ahead of key rivals Dynatrace DT and Elastic ESTC in terms of growth pace. Dynatrace posted third-quarter fiscal 2026 revenues of $515 million, up 18% year over year, with ARR reaching $1.97 billion — up 20% year over year — and net new ARR of $75 million, marking the third consecutive quarter of double-digit net new ARR growth. Dynatrace's large-customer momentum is building, but its growth rate trails Datadog's 29%. Meanwhile, Elastic reported third-quarter fiscal 2026 revenues of $450 million, up 18% year over year, with AI customers surpassing 3,000 and enterprise accounts with over $100,000 in ACV rising 14% to 1,660. Elastic's AI traction is notable, yet its enterprise customer base remains smaller. Across all three, AI is the common growth engine, though Datadog leads in scale and deal velocity.

DDOG’s Price Performance, Valuation & Estimates

Shares of DDOG have lost 13.3% in the past six-month period compared with the Zacks Internet - Software industry’s decline of 20.4%.

DDOG’s 6-Month Price Performance

From a valuation standpoint, Datadog appears overvalued, trading at a forward 12-month price-to-sales ratio of 9.91X compared with the broader Zacks Internet - Software industry's forward sales multiple of 3.99X. DDOG carries a Value Score of F.

DDOG’s Valuation

The Zacks Consensus Estimate for DDOG’s 2026 revenues is pegged at $4.08 billion, suggesting 19.17% year-over-year growth. The consensus mark for 2026 earnings is pegged at $2.12 per share, indicating a 3.41% increase from the previous year.

Datadog, Inc. Price and Consensus

Datadog, Inc. price-consensus-chart | Datadog, Inc. Quote

DDOG stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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