Monness, Crespi, Hardt downgraded Datadog, Inc. (NASDAQ:DDOG) to Sell, lowering the price target to $98 in a note Friday, citing a perilous software environment and excessive valuation.
"In the face of further evidence of treacherous trends across the enterprise software complex, combined with a gen AI hype cycle that has revealed itself to be a revenue mirage this year," analysts believe software stocks like Datadog are vulnerable.
Monness, Crespi, Hardt acknowledge Datadog's long-term potential, but emphasize the current challenges. "The darkest days of this economic quagmire are ahead of us," analysts predict.
Analysts point to recent earnings reports across the enterprise software sector as evidence, highlighting lackluster performances and even guidance cuts. They argue that the "gen AI nirvana" promoted by many hasn't translated to real revenue growth.
"Even prominent SaaS vendors such Salesforce...issued lackluster outlooks," analysts note.
Datadog's valuation is another key concern. "Datadog garners the second-richest valuation in our enterprise software coverage," analysts state, "trading at 11.3x (EV/revenue) our CY:25 revenue forecast." Monness, Crespi, Hardt believe this lofty valuation is unsustainable in the current software climate, prompting their downgrade to Sell.