Datadog Stock Gains 27% in 6 Months: Is it Worth Holding for Now?

Datadog DDOG shares have appreciated 27.8% in the past six months, outperforming the Zacks Computer and Technology sector’s return of 26.9% and contrasting sharply with the Zacks Internet Software industry’s decline of 3%. The momentum reflects an improving sentiment around cloud observability demand, steadier usage trends across enterprise workloads and continued product expansion into artificial-intelligence-driven automation and security. At the same time, investors remain cautious in their expectations, as the broader spending environment is still normalising and competitive intensity across cloud ecosystems persists. Let’s dig deeper to determine whether investors should maintain their positions in DDOG stock.DDOG’s Price PerformanceImage Source: Zacks Investment ResearchAI-Driven Product Innovation Creates DifferentiationDDOG is establishing a distinct strategic advantage by designing observability around the demands of AI-era infrastructure rather than extending legacy monitoring workflows. Bits AI agents for Site Reliability Engineering exemplify this shift, running autonomous investigations during incidents and correlating logs, traces and metrics to surface likely root causes before engineers intervene. Datadog is also moving early to address the complexity of monitoring large language model (LLM) applications through LLM Experiments, Playgrounds and custom evaluation tools, giving teams the ability to assess quality, drift and safety as AI systems scale in production.Integration breadth reinforces this differentiation. In the third quarter of 2025, DDOG surpassed 1,000 integrations across Amazon Web Services, Microsoft Azure and Google Cloud, embedding deeply into customer workflows and raising switching costs. Security is emerging as another growth vector as Cloud SIEM and cloud security offerings feature more prominently in large enterprise deals. This shift is being accelerated by the convergence of observability, security and AI, where DDOG’s AI-driven threat detection, anomaly detection and log analysis capabilities are becoming essential to how enterprises monitor and secure increasingly complex systems.Platform adoption momentum continued in the third quarter of 2025, with 84% of customers using two or more products and 54% adopting four or more, at a time when AI-focused customers contributed 12% of revenue. This suggests how enterprises are deepening their reliance on DDOG’s unified platform as AI-driven workloads scale, reinforcing ecosystem stickiness and supporting stronger expectations ahead. The Zacks Consensus Estimate for 2025 EPS is pegged at $2, up by 16 cents over the past 60 days and indicating 9.89% year-over-year growth.Datadog, Inc. Price and Consensus Datadog, Inc. price-consensus-chart | Datadog, Inc. QuoteMarket Competition and Pricing PressureDDOG is operating in a more competitive observability landscape as established enterprise vendors intensify their push into application performance monitoring and log analytics. IBM IBM remains a significant presence through its Instana platform and broader hybrid cloud monitoring portfolio, giving IBM strong positioning with enterprises that prioritize integrated visibility across distributed and legacy environments. Cisco Systems CSCO has strengthened its stance following the Splunk acquisition, allowing Cisco Systems to combine network, security and observability capabilities in bundled offerings that place pricing pressure on standalone platforms. Dynatrace DT continues to challenge DDOG with its AI-driven monitoring engine and automated dependency mapping. Dynatrace maintains strong traction in large enterprise accounts where deep, automated insights are prioritized.These pressures are emerging at a time when customers are becoming more cost-conscious and optimizing spend on observability tools. DDOG has seen renewals that required pricing adjustments, illustrating tighter budget scrutiny even among fast-growing and AI-focused accounts. In parallel, some large enterprises are evaluating partial in-house observability solutions to lower long-term costs or reduce dependency on external platforms, adding another layer of structural pressure. As a result, DDOG must continue defending its position in segments where IBM, Cisco Systems and Dynatrace remain deeply entrenched and increasingly aggressive in their go-to-market strategies.Valuation Premium Demands Cautious ApproachDDOG’s valuation suggests that the stock trades at a premium compared to the broader Zacks Internet – Software industry. Currently, Datadog’s forward 12-month P/S ratio hovers around 13.17x, a level that reflects how the recent share price appreciation has amplified investor optimism around the company’s expanding platform and AI-driven product momentum. This stands well above the industry’s 4.92x and the sector’s 6.8x, suggesting that a meaningful portion of anticipated growth is already priced in. The Value Score of F reinforces this stretched valuation profile, highlighting the need for stronger earnings visibility to justify additional upside.Price/Sales Ratio (F12M)Image Source: Zacks Investment ResearchConclusionDDOG’s combination of strong product innovation and rising competitive and pricing pressures keeps the outlook balanced. While the long-term opportunity remains intact, the stock’s elevated valuation and a more cautious spending environment suggest that much of the optimism is already reflected in the current multiple. Investors already positioned in DDOG can reasonably maintain exposure, while those evaluating new positions may prefer to wait for a more attractive setup.DDOG currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Free Report: Profiting from the 2nd Wave of AI ExplosionThe next phase of the AI explosion is poised to create significant wealth for investors, especially those who get in early. It will add literally trillion of dollars to the economy and revolutionize nearly every part of our lives.Investors who bought shares like Nvidia at the right time have had a shot at huge gains.But the rocket ride in the "first wave" of AI stocks may soon come to an end. The sharp upward trajectory of these stocks will begin to level off, leaving exponential growth to a new wave of cutting-edge companies.Zacks' AI Boom 2.0: The Second Wave report reveals 4 under-the-radar companies that may soon be shining stars of AI’s next leap forward.Access AI Boom 2.0 now, absolutely free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report International Business Machines Corporation (IBM): Free Stock Analysis Report Cisco Systems, Inc. (CSCO): Free Stock Analysis Report Dynatrace, Inc. (DT): Free Stock Analysis Report Datadog, Inc. (DDOG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks