Bank of America has singled out Datadog as its preferred software investment ahead of the company’s fiscal second-quarter 2026 earnings release set for August 6. The bank reaffirmed a Buy rating on the monitoring and observability specialist, citing three principal factors that underpin its bullish view.
First, BofA referenced proprietary data analysis that it says points to healthy demand conditions for Datadog’s offerings. Second, the bank noted an evolving picture around large customer renewals that it views as less threatening than some investors expect. Third, BofA highlighted Datadog’s improved value proposition for AI agent observability following recent industry incidents, which the bank believes elevates the company’s relevance as monitoring shifts toward AI workflows.
On revenue outlook, BofA reported greater conviction in Datadog’s second-quarter prospects after studying historical correlations between the company’s revenue growth and Amazon Web Services performance. According to the bank’s analysis, its second-quarter estimate implies a compression relative to historical revenue-growth multipliers and net-new revenue take rates, a relationship BofA interprets as leaving room for upside to current consensus figures. The bank added that any meaningful acceleration in revenue growth from the 32% year-over-year increase recorded in Datadog’s first quarter of fiscal 2026 could provide additional support for the shares.
BofA addressed investor concerns about potential volatility tied to large AI customer renewals. The bank characterized those worries as overblown while acknowledging that AI labs could seek more favorable economics or optimize spending when contracts come up for renewal. BofA nevertheless pointed to signs of diversification and win momentum: it listed two hyperscaler AI-research deals among new frontier-lab wins and cited five customers now spending more than $10 million on AI-related services. The bank said these developments reduce concentration risk and that expanding AI training workloads open new market opportunities for Datadog.
Another pillar of BofA’s thesis is the growing demand for agent observability in the wake of recent industry incidents involving autonomous AI systems. The bank argued that enterprises will need deeper visibility into how AI agents behave and interact, particularly when issues arise, and that Datadog’s investments in agent observability position it to benefit as monitoring priorities shift away from solely infrastructure and applications toward AI workflows. BofA framed this transition as an expansion of Datadog’s long-term market opportunity.
Independent of BofA’s view, a number of other analysts have recently updated their outlooks on Datadog. Morgan Stanley and Citi raised their price targets to $300, and Benchmark reiterated a Buy rating with a $330 target, saying it expects Datadog to outperform consensus expectations.
Data and timing: Datadog’s fiscal second-quarter 2026 earnings are scheduled for August 6. The company grew revenue 32% year-over-year in the first quarter of fiscal 2026, a baseline BofA referenced when discussing the potential for acceleration.