Guggenheim Securities moved Datadog Inc. to a Buy rating from Neutral and issued a $175 price target, which the firm says implies roughly 50% upside from prevailing share levels. The upgrade rests on the analysts' view that Datadog is "a primary beneficiary of AI-driven growth" in both data volumes and IT complexity.
Datadog shares responded in premarket trading, climbing 2.6% as of 07:50 ET.
Analyst background and change in stance
Analysts Howard Ma and Joseph DiBartolomeo said their earlier caution toward the stock stemmed from Datadog's concentrated exposure to OpenAI, which the analysts believe still intends to move entirely off Datadog's platform. However, their recent checks suggest that any migration is taking longer than anticipated, providing Datadog with additional time to expand its AI customer base across other organizations.
New customer traction
Guggenheim noted an eight-figure deal disclosed on Datadog's fourth-quarter earnings call, describing it as the largest new customer logo in the company's history. The analysts attribute that contract to Anthropic, which they place within a broader cohort of approximately 650 AI-native customers.
Updated financial outlook
The firm now models Datadog revenue growing 27% in 2026 to $4.36 billion, about 6% ahead of Street consensus, and anticipates an adjusted operating margin of 24.5%, versus the Street's 21% estimate. The 2026 forecast breaks down into core business growth of 24%, OpenAI-related revenue expanding roughly 16% (a material change from a prior forecast of a 20% decline), and AI-native customers outside OpenAI, including Anthropic, surging 220% year-over-year to add about $160 million.
Looking further ahead, Guggenheim projects revenue growth easing to 20% in 2027 as OpenAI's contribution falls to around $150 million before eventually churning, followed by a reacceleration to 25% growth in 2028 as Anthropic and the wider set of AI-native clients help replace that revenue.
The analysts estimate Anthropic's annual recurring revenue on Datadog could top $350 million by 2028 and judge the churn risk from Anthropic to be lower than for OpenAI because the two companies have differing business profiles.
Competitive position and product monetization
Guggenheim's note emphasizes Datadog's purpose-built storage and query engines - including the Monocle metrics database and the Husky event engine - as capabilities that are hard to replicate. That assessment is offered in response to concerns that open-source telemetry tools or large language models might eventually commoditize observability platforms.
The analysts also singled out Datadog's Bits AI suite, which automates incident detection and response, as a potential new revenue stream and possible avenue for outcome-based pricing. "The Bits AI suite is leading in its category and could serve as a new monetization lever for Datadog, perhaps via outcome-based pricing," they wrote.
They added that "AI observability, Bits AI, and sales capacity and productivity increases are all potential levers for upside."
What this means
Guggenheim's upgrade reflects a shift in expectations tied to the pace of AI adoption among large-scale AI-native customers and Datadog's ability to monetize observability and incident automation. The firm's revised forecasts assume meaningful growth both from core monitoring services and an expanding roster of AI-specific clients.