BTIG upgraded Datadog (NASDAQ:DDOG) to a Buy from Neutral, with a new price target of $143 per share, highlighting a promising "underappreciated Splunk displacement opportunity" as a key driver.
BTIG analysts view Datadog as a leading player in the observability market, poised for significant growth due to its new product offerings such as Flex Logs, LLM Monitoring, and Bits AI. These innovations are expected to enhance Datadog's market position and growth potential. The analysts emphasized that the new products and features create a compelling long-term growth trajectory.
Recent fieldwork, involving discussions with ten partners, including large enterprises, led BTIG to several conclusions. Firstly, cloud cost optimization initiatives related to the macroeconomic environment seem mostly complete, positively impacting observability spending.
Despite some mild cloud growth disappointments from Microsoft, the overall trend suggests improving growth among the top three hyperscale cloud IaaS providers, which bodes well for observability spending.
BTIG believes Datadog is well-positioned to gain incremental market share from Splunk, following its acquisition by Cisco. While this displacement may not significantly impact 2024, it represents a substantial opportunity over the next three to four years.
BTIG estimates that Datadog could capture approximately $270 million in incremental annual revenue from Splunk, potentially adding around 300 basis points per year to Datadog's growth rate through 2027.