Why Datadog Stock Cruised to a More Than 4% Gain Today

A bullish new analyst note was the news item rallying Datadog (NASDAQ: DDOG) stock on hump day. The stock ended the trading session more than 4% higher in price as a result, which looked especially good when placed against the S&P 500 index's marginal decline.

Top of its class

Wednesday morning, Bank of America Securities pundit Koji Ikeda flagged Datadog as being the bank's top pick in the observability software segment. To emphasize this he raised his price target on the stock to $150 per share from his previous $138. He also reiterated his existing buy recommendation.

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According to reports, Ikeda expressed confidence that Datadog can deliver 20%-plus revenue growth and free-cash-flow (FCF) margins over a long-term tenure. Customers are eager to use the company's solutions, the analyst surmised from a proprietary survey given to clients, and that sentiment should underpin the continuing improvements.

Ikeda also waxed bullish about Datadog's embrace of artificial intelligence (AI) functionalities to bolster its offerings. He pointed out that the company's take from "AI natives," the AI solutions Datadog has developed, is already significant, comprising nearly 9% of annual recurring revenue (ARR).

Jumps in the fundamentals expected

I'd generally agree with Ikeda's take. Datadog seems to have its finger on the pulse of what its customers want and demand, and has been quite assertive with innovating its products (hence the hearty push into AI). I think the analyst's prediction of continued double-digit gains is realistic, and I'd consider this stock a good one to own.

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Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Datadog. The Motley Fool has a disclosure policy.