Wall Street’s Divided Verdict on Datadog’s Future

The investment case for Datadog is currently at a crossroads, with prominent Wall Street firms issuing starkly contradictory research notes. This clash of perspectives is creating a palpable sense of uncertainty in the market, as investors weigh bullish growth narratives against bearish competitive warnings.

On January 12, the divergence in analyst opinion was on full display. In one corner, Morgan Stanley upgraded the stock to an "Overweight" rating, attaching a $180 price target. Their optimism is rooted in an improved growth outlook for 2026, which they attribute to an acceleration in cloud migration and sustained demand from AI infrastructure projects. The firm's projections include a compound annual growth rate of 23% for Datadog's core revenue through 2028.

Simultaneously, KeyBanc Capital Markets maintained its "Overweight" recommendation, though it reduced its price target from $230 to $170. Analysts there continue to view the company as a versatile beneficiary of AI adoption, citing core strengths in observability and security platforms.

In the opposite corner, Goldman Sachs took a decisively negative stance, also on January 12. The bank downgraded Datadog to a "Sell" rating and set a price target of just $113. Goldman's analysts foresee intensifying competition within the observability market and anticipate a shift toward more cost-effective, "deflationary architectures" by 2026. They specifically highlighted competitive pressure from rivals like Grafana and the expanding offerings from cloud hyperscalers, including Amazon Web Services.

Should investors sell immediately? Or is it worth buying Datadog?

Market Performance and Underlying Fundamentals

This analyst disagreement is contributing to notable volatility. Datadog's share price has faced significant pressure, trading down approximately 40% from its all-time high recorded in November 2025. This price action stands in contrast to the company's recent operational performance. For the third quarter of 2025, Datadog reported financial results that exceeded Wall Street's expectations for both profit and revenue.

Furthermore, the company has strengthened its strategic partnership with Amazon Web Services, with plans to co-develop and bring new joint products focused on artificial intelligence and security to market.

The Path Forward

The conflicting signals from market experts reflect the broader, dynamic shifts occurring in the enterprise software sector. Whether the optimistic growth thesis centered on AI and cloud trends prevails, or the pessimistic view of mounting competitive and pricing pressures proves correct, will be the primary determinant of the stock's trajectory. Upcoming quarterly earnings reports will serve as critical indicators for assessing which narrative is gaining ground.