Caution warranted on this red hot AI cloud data stock that's now 'priced for perfection,' says Todd Gordon
HS 14/07/2026
Last week in this column, we covered the software stocks that were previously left for dead , but are starting to show signs of gaining critical ground on not only the semiconductors, but the broader market. That theme is continuing to manifest, and I want to add another key software name to our buy list — Datadog, Inc. Like last week’s Snowflake analysis, DDOG is a relative-strength leader, not a “SaaS-poclaypse” walking zombie that is trying to come back to life. Datadog runs the control room for modern software: it pulls data from a company’s servers, apps and cloud services into one place so engineers can see, in real time, whether everything is running and get alerted the moment something breaks. The stock just printed up around $266, ahead roughly 94% in the past year, riding well above both its 50-and 200-day moving averages, with DDOG / S & P turning up also, demonstrating strength vs the broader market. Looking closely at the daily chart, we see the $201 resistance was broken earlier this year and now serves as support. What’s interesting about this break of the $201 resistance is it broke through the prior symmetrical advance of 147%. More times than you would imagine, breakout moves fail at the prior symmetrical percentage advance. Not the case with Datadog. The last three weeks, we see an IBD-style cup and handle pattern setting up a breakout targeting the $300’s. (The Investor’s Business Daily style cup with handle is a bullish continuation pattern developed by William O’Neil. ) The fundamentals back up the bullish technical assessment. Datadog charges by usage, not by seat, so its bill grows automatically as customers run more software in the cloud, which shows up as a net-retention rate above 120% and roughly three-quarters of growth coming from existing customers who keep adopting more tools. First quarter 2026 was its best quarter ever, with revenue crossing $1 billion for the first time, up about 32%, with annual recurring revenue past $4 billion and record new-customer bookings. The accelerant is AI as Datadog built GPU monitoring and LLM observability for exactly this moment, landed eight-figure deals with hyperscaler AI research divisions, counts 14 of the top 20 AI-native companies as customers, and just earned FedRAMP High certification to open the door to work with the Federal government. Its meter spins faster as cloud and AI spending climb, which is exactly where corporate spend is currently heading. Looking below at the weekly, you’ll see my favorite confirmation, which is Datadog’s forward estimates for revenue and earnings have been rising for 1-, 2-, and 3 fiscal years out. When the price and analysts’ expectations are rising in unison, you’re looking at a name that should continue to attract institutional firepower that can propel trends, breakouts and extension moves faster than you’d expect. Bottom Line Now for the catch, and it’s the price. At $266, Datadog isn’t cheap by any stretch. It trades around 108 times forward earnings and 10 to 11 times forward sales, is up a blistering 140% in just three months and is now sitting about 10% above Wall Street’s average price target near $230 to $240. Bernstein even trimmed it to Market Perform recently on some near-term demand caution. And underneath all that growth, the GAAP profits are still thin. The company ran a small operating loss last year, and most of its net income comes from interest on a $4.8 billion cash pile rather than the core business. Then there are the real-world risks. A good chunk of that AI revenue is concentrated in just a handful of big customers. The same hyperscalers that host Datadog also sell tools that compete with it. And last year, someone breached Datadog’s own source code, which is a pretty uncomfortable look for a company whose whole pitch is securing everyone else. So here’s my bottom line. The trend, the pattern and the rising estimates all point higher, and I respect that. But you’re paying up for near-perfection here, so I’m not chasing it. I’d rather respect the breakout, size the position with discipline, lean on that $201 support and use the pullbacks to add. — Todd Gordon, Founder of Inside Edge Capital, LLC We offer active portfolio management and financial planning for retail investors, as well as regular market updates like the idea presented above. Visit us at https://www.insideedgecapital.com/cnbc DISCLOSURES: Todd does not yet own DDOG, SNOW, or NOW personally and for clients of his wealth management company Inside Edge Capital, LLC. 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