AI Company Boosts S&P 500 by 300% Since 2020, Marking It as a Continued Buying Opportunity, Suggests a Financial Expert on Wall Street
Datadog, a leading provider of observability software, has seen its shares surge by 13% this month, following its inclusion in the S&P 500 on July 9. The move has been driven by numerous investment products linked to the index that must buy the stock upon inclusion.
The tech company, which sells observability software with an AI engine called Watchdog, has been recognised for its technology leadership in observability software for the fourth straight year by Gartner. Earlier this year, Forrester Research also named Datadog as a leader in AI for IT operations.
Yun Kim at Loop Capital has a target price of $200 per share for Datadog, implying a 31% upside from its current share price of $152. However, the median 12-month target price of $140 per share implies an 8% downside from Datadog's current price. Most Wall Street analysts think Datadog is slightly overvalued.
Datadog's first-quarter financial results beat estimates on the top and bottom lines. The company reported a revenue increase of 25% to $762 million, but non-GAAP net income rose just 4%. Management raised Datadog's full-year guidance, but adjusted earnings are still forecast to decline 7% in 2025.
The S&P 500, one of three major U.S. stock market indexes, includes over 80% of domestic stocks by market capitalization. The index is known for driving significant growth for companies that qualify for inclusion. In total, 160 companies were added to the S&P 500 over the last decade, with stocks tend to increase by an average of 12.3% in the year following their inclusion.
Datadog replaced Juniper Networks in the S&P 500, as Juniper Networks was recently acquired by Hewlett Packard Enterprise. The performance of Datadog stock in the next year depends primarily on financial fundamentals like revenue and earnings, as well as sentiment.
Since January 2020, Datadog's stock has returned an impressive 300%. The company has achieved this growth despite the challenges posed by the global pandemic. The factor company Strategy (formerly MicroStrategy), which refocused on Bitcoin as a core business strategy, has also seen significant growth over the past ten years by qualifying for inclusion in the S&P 500, with a net profit of $10 billion in Q2 and a market capitalization exceeding S&P 500 requirements.
In conclusion, Datadog's inclusion in the S&P 500 has given the company a significant boost, driving its shares up by 13% this month. However, the company's future performance will depend on its financial fundamentals and market sentiment.
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