Datadog Stock Looks Undervalued

From retailers to healthcare providers, companies are now building digital backbones that need to run non-stop 24/7, 365 days a year. But keeping those systems humming without hiccups? That’s where Datadog steps in.

Datadog (NASDAQ: DDOG) makes cloud infrastructure monitoring software that acts like a digital nervous system for enterprises. If something breaks, slows down, or gets overloaded, Datadog lets you know, instantly.

Yet despite playing such a mission-critical role, Datadog stock is up just 2% over the past 12 months yet the business has matured, the top line is growing fast, and AI is emerging as a new frontier.

Key Points

• Datadog helps tens of thousands of businesses prevent costly outages by monitoring cloud infrastructure in real time.

• Its AI observability tools are gaining traction fast, with usage doubling year over year.

• Revenue grew 24.6% in Q1, profitability remains solid, and nearly all analysts rate the stock a buy.

Observability for AI

Datadog ended Q1 2025 with nearly 31,000 customers spanning nearly every industry you can think of.

Lately, Datadog has shifted its focus to something much bigger than traditional monitoring: artificial intelligence.

Last year, the company stealthily launched a new suite of tools built for teams working with large language models. These tools let developers track how much they’re spending on AI inference, debug technical glitches, and evaluate model output quality, a crucial need for businesses deploying chatbots or generative AI services.

And the traction has been impressive. The number of customers using Datadog’s LLM Observability product 2x’ed over the past six months alone.

It also rolled out monitoring tools tailored for businesses using APIs from OpenAI and other foundation model providers. These help teams understand where compute costs are coming from, how consumption varies across departments, and how to budget accordingly, a growing need as AI use becomes decentralized across companies.

By Q1’s end, Datadog customers using these AI-focused tools doubled year over year. It’s still early days, but the data suggests demand is accelerating.

This growth in AI monitoring is giving Datadog a front-row seat to how the enterprise AI stack is evolving. That makes it uniquely positioned to influence, and profit from, how businesses scale AI workloads in the years ahead.

Financials That Just Keep Impressing

Datadog posted $761.6 million in revenue for Q1 2025, beating its own forecast and growing 24.6% year over year.

AI-native customers whose core products revolve around artificial intelligence accounted for 8.5% of total sales, more than doubling their contribution from just 12 months earlier.

That momentum led management to raise full-year revenue guidance to as much as $3.235 billion, up from $3.195 billion.

Notably, this isn’t growth at the expense of the bottom line. Despite R&D expenses ballooning, now more than half of its total operating costs, Datadog still turned in a $24 million profit.

Notably, Datadog has stayed consistently profitable for over three years, a rare feat in the high-growth software space, where many competitors burn through cash hoping to scale.

The Bottom Line

Datadog’s blend of high-margin software, ballooning AI offerings, and real-time operational visibility makes it a standout in the infrastructure-as-a-service space. It’s one of the few companies that benefits both from the rise of cloud and the explosion in AI, without needing to build or train its own models.

With the stock still trading well below its all-time highs and fundamentals heading in the right direction, investors have a chance to own a proven compounder at a relative discount.