Piper Sandler issued a client note on Wednesday highlighting a steady demand backdrop across security and infrastructure software and naming two stocks it considers well positioned for 2026: Datadog (DDOG) and Varonis Systems (VRNS).
Analyst Rob Owens said quarterly channel checks indicated a modest softening relative to late 2025, but characterized that dip as "relatively par for the course" given normal seasonal patterns. He added that year-over-year results were in line with what was seen in 2025, which the analyst interprets as evidence of a "stable operating environment that is conducive to solid quarters."
On spending trends, Owens reported that roughly 70% of respondents said AI projects are impacting non-AI software spending. He emphasized that this effect remains within normal bounds and does not represent a "step function change" in how customers are prioritizing budgets. In his view, security continues to capture a greater portion of customer wallets, with demand strongest in the U.S.
Against this backdrop of relatively steady demand and sector dynamics, Piper Sandler said it has "the most confidence in DDOG and VRNS" as the firms move toward upcoming earnings reports.
For Datadog, the firm pointed to derisked guidance, favorable competitive positioning and robust usage trends. Owens highlighted Datadog Experiments, launched in April, calling it "an important step" in broadening the company's product analytics capabilities. Piper Sandler said these factors support expectations for a first-quarter beat-and-raise.
Varonis drew praise for its Atlas AI security platform launch and for assumptions baked into its 2026 revenue guide that the analyst described as conservative. Piper Sandler characterized the combination of the Atlas launch and conservative guidance as creating a de-risked setup and said it expects Varonis to report first-quarter results ahead of expectations, with a full-year guidance raise likely.
The note frames both names as beneficiaries of sustained interest in security spending and as having company-specific catalysts - product launches and cautious guidance - that underpin the firm's confidence heading into earnings season.