Datadog Inc (NASDAQ: DDOG) is rallying this morning after the cloud-based observability firm posted its fourth-quarter report that, on the surface, appeared to be a clean beat.
The company reported $953 million in revenue on 59 cents a share of adjusted earnings for its Q4, both handily above Street estimates.
However, one could argue that a simple headline beat is no longer enough to justify DDOG shares’ multiple, which sits at an egregiously stretched 230x forward at the time of writing.
A deeper dive into the numbers suggests Datadog’s valuation may have decoupled from the firm’s fundamental reality.
2026 guidance could hurt Datadog stock
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Investors are treating Datadog stock as an artificial intelligence (AI) beneficiary, which is why it’s trading at such a premium valuation.
However, if DDOG were optimally capturing the AI tailwinds, you’d expect to see its growth curve accelerating.
Instead, the management’s full-year guidance suggests it’s a maturing business facing gravity.
Datadog sees its revenue falling between $4.06 billion and $4.10 billion this year, representing a deceleration to roughly 19% growth on a year-over-year basis.
For a company trading at a triple-digit multiple, a “barely in line” outlook is far from encouraging.
In the software-as-a-service (SaaS) market, the rule of thumb is: the higher the multiple, the higher should be the “growth gap”.
But in DDOG’s case, executives’ guidance for sub-20% growth is a signal that the company’s core observability market may be saturating.
If the AI revolution were the massive catalyst the bulls claim it to be, Datadog’s outlook would be moving toward 30% or 40%, not drifting toward the teens.
Technicals warrant caution in playing DDOG shares
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Beyond valuation, several structural risks are beginning to mount as well. A huge chunk of Datadog’s artificial intelligence revenue is concentrated in a few massive accounts – most notably OpenAI.
But recent reports suggest OpenAI and other LLM giants are increasingly moving toward building in-house observability tools to save on the “Datadog tax”.
Sure, DDOG now has over 4,300 customers spending more than $100,000 annually, demonstrating the company is effectively moving up-market into big enterprise deals.
However, the OpenAI situation is a “whale” risk that 4,300 smaller fish can’t easily replace.
Additionally, Datadog shares’ technicals aren’t particularly exciting either.
Despite a post-earnings rally, the Nasdaq-listed firm remains decisively below its key moving averages (50-day, 100-day, 200-day), reinforcing that bears are firmly in control.
These technical and fundamental headwinds are making options traders recommend “caution” as well.
According to Barchart, the lower price on contracts expiring mid-June sits at $103 currently, indicating DDOG stock could tumble about 20% over the next four months.
All in all, with competitive pressure mounting from the likes of Dynatrace and New Relic, which are undercutting on price, Datadog’s “best-in-breed” is under siege in 2026.
The post-earnings rally may look like a breakout, but for a stock this egregiously overvalued, it may be an opportunity to take profit, not initiate a new position.
