Datadog (DDOG) shares ended roughly 15% higher on Tuesday after the observability service for cloud-scale applications came in handily above Street estimates for its fiscal Q4. As investors cheered the constructive release, DDOG soared past its 20-day moving average (MA), signaling the upward momentum could sustain in the near-term.

Versus its November high, Datadog stock remains down about 35%, indicating long-term investors may still have time to initiate a position in this fast-growing artificial intelligence (AI) beneficiary.

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While DDOG stock is expensive to own at about 230x forward earnings, the premium may be justified, given the company is often seen as the gold standard for SaaS efficiency.

Why? Because it grew its revenue by 29% year-on-year in Q4 — and finding a publicly listed U.S. software firm that’s growing faster while trading at a compelling valuation is a bit of a challenge.

Moreover, Datadog’s expanding multi-product adoption creates a sticky ecosystem, with 46% of customers now using six or more modules.

This deep integration, coupled with robust free cash flow ($915 million in 2025) and a dominant position in AI-driven workload monitoring, solidifies its long-term defensive moat.

DDOG’s outlook for up to $4.1 billion in revenue suggests its top-line growth will decelerate to about 20% this year.

But that shouldn’t deter investors from initiating a position in Datadog shares given the company’s management has a history of guiding low to set the floor for a “beat and raise.”

Plus, the underlying demand is accelerating as well. In Q4, the cloud-based observability firm saw bookings increase 37% on a year-over-year basis to a record $1.63 billion.

With tool calls for its artificial intelligence agents growing 11x in one quarter and the firm signing two deals worth over $100 million, it’s conceivable that Datadog will remain a high-efficiency cash machine through the remainder of 2026.

Wall Street analysts also seem to believe that DDOG shares will push further up after the positive Q4 print.

The consensus rating on Datadog sits at “Strong Buy” currently, with the mean target of about $194 indicating potential upside of another 45% from here.

On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com