Stanphyl Capital
Managing Member & Portfolio Manager at Stanphyl Capital, Value Investor
Datadog's multiple, not its earnings, is the problem: at a P/E in the 600s, it only works if growth keeps accelerating for the next eight quarters. x.com x.comÂ
Datadog fell 20% despite beating earnings because at a 550 P/E it trades like a meme stock, and buying at such valuations risks losing everything. x.comÂ
The more AI the world builds, the more data flows through Datadog. Revenue growth re-accelerated to 32% from 28%, the rarest signal in software in 2026. As the single pane of glass for cloud infrastructure, it monitors AI workloads that generate 10-100x more telemetry, with OpenAI, Anthropic and AWS using it for GPU clusters, token costs and model latency. AI-native revenue is about 12% of the total and growing triple digits, and expected revenue CAGR is 22%. x.comÂ
Datadog's valuation looks extremely stretched at 17x next-twelve-month revenue after jumping 30% on its May 7 earnings and grinding up another 30% since from a much larger base. Even with the risk case off the table for now, as a reply notes, the move is still dumb. x.com x.comÂ
Combining estimated NTM revenue growth with trailing GAAP EBITDA margin makes Palo Alto Networks, Datadog, JFrog, Rubrik and Snowflake look overvalued against forward EV/sales. Zoom, Alphabet, Oracle, AppLovin, Microsoft, Fair Isaac, Adobe, Amazon and Teradata remain undervalued on this Rule of 40 comparison; Palantir, Cloudflare and CrowdStrike remain overvalued. x.comÂ
Datadog is one of the best-run software companies, spending more on R&D and much less on sales and administration than peers while still growing 36% recently. Rubrik and Snowflake spend massively on SG&A, and Palo Alto Networks and CrowdStrike are no better. x.com x.comÂ
CrowdStrike, Palantir and Datadog trade on multiples even sillier than application SaaS multiples were at their lows, set by the same investors who control both groups. Application SaaS turned out to be a long. The sell side is likely to raise targets circularly, citing low-end multiples to justify premiums for names like Datadog and the discount to infrastructure to lift app-software targets. x.com x.comÂ
Datadog faces a tough setup into its print at 25x sales, a valuation that demands a big beat and raise. It will probably beat and the chart is decent, but the setup remains tough even as BofA calls it a top pick into Q2 with a $305 target. x.com x.comÂ
Datadog was wrongly caught up in the 'AI is killing software' selloff, because it is the tracking and logging tool for AI agents and is moving into security for agentic agents. AI tools in software developers' hands should also drastically speed feature development and releases at software companies. After earnings, $200 is likely a magnet. x.com x.com x.comÂ
Cloudflare is extremely expensive at 44 times trailing twelve-month sales, a valuation that makes Datadog look cheap. x.comÂ