Jake Lerch, The Motley Fool

Sat, Jun 21, 2025, 10:33 AM5 min read

• Datadog stock remains more than 35% below the all-time high it reached four years ago.

• Many organizations are rapidly adopting AI-powered tools, which presents an opportunity for Datadog.

• The shares are trading near their cheapest price-to-sales ratio ever.

• 10 stocks we like better than Datadog ›

The rise of artificial intelligence (AI) is generating plenty of wealth on Wall Street -- and the winners won't be limited to just semiconductor stocks like Nvidia. Tech stocks across several subsectors will benefit, too.

Let's take a look at one such stock, Datadog (NASDAQ: DDOG).

Between 2019 and 2021, Datadog was one of the hottest names in the stock market. Shares advanced by more than 400% in only three years. However, as the stock market soured on tech stocks and speculative companies in 2022, Datadog shares plummeted. All told, the shares cratered by 68%, erasing the majority of their earlier gains. As of this writing, Datadog stock remains more than 35% off of the all-time high it touched in late 2021.

Yet sentiment regarding the stock appears to have shifted. Datadog, which provides cloud monitoring services for enterprises, now boasts strong ratings from the analyst community.

According to data compiled by Yahoo! Finance, there are 46 analysts covering Datadog. Of those, 10 rate it as a strong buy, 28 rate it a buy, and eight call it a hold. None of them rate it a sell or strong sell.

Moreover, the average 12-month price target for Datadog shares is nearly $139. That's about 9% higher than the stock trades as of this writing.

Datadog's business model is to sell monitoring services to organizations with significant cloud assets. This type of monitoring is critical to enterprises today, as operational downtime can result in serious consequences, including lost revenue, customer dissatisfaction, and even legal action. It already serves tens of thousands of clients across a range of industries, including e-commerce, gaming, and finance.

While the type of monitoring that Datadog offers isn't new, what it is monitoring is changing. New large language models (LLMs) powered by AI algorithms have become much more important to organizations.

Use of these models is rapidly spreading into the day-to-day operations of countless organizations. As this happens, their performance must be monitored, too. That has created a new source of revenue for Datadog, which is helping boost its growth.

Consider the company's first-quarter results. Datadog noted that about 8.5% of its total revenue came from AI-native customers. That was up from 3.5% one year earlier -- showing meaningful growth for this new source of revenue.