Datadog (DDOG): Upgrading on AI-driven tailwind strength

Bernstein upgrades Datadog to Outperform from Market-Perform. It had downgraded the stock last quarter on concerns over a large ARR contract downsizing by its biggest "Born in AI" customer and late-year weakness in the traditional customer base that drives ~85% of revenue. Both concerns now look less severe: high-frequency data show token consumption accelerating, as leading AI labs released new models and cut prices aggressively, while consumer AI app engagement (Muse, Dot) keeps rising. The firm also sees the "Mythos moment" for cybersecurity and the Scout v1.0 release of the SRE AI Agent as timely catalysts, with AI coding agents raising observability requirements at traditional customers. Bernstein raised near-term revenue growth expectations and extended the growth duration, treating this upside as a cushion not included in its model, and lifted its price target while upgrading the rating.