The SaaSocalypse seems to have a much bigger bark than a bite, at least where Datadog (NASDAQ:DDOG) is concerned. Shares of the observability software specialist are surging in Thursday’s session, up by 28% as of writing, after the observability software specialist’s Q1 results impressed the market.
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Like many other software names, DDOG stock has been in a slump over fears the rise of AI is bad news for the segment. However, the results offered a strong counterargument.
There were beats all around, with revenue hitting $1.01 billion, up 32.5% year-over-year and ahead of expectations by $50.06 million, while adjusted EPS of $0.60 topped the Street’s forecast by $0.09. For 2Q26, Datadog expects revenue between $1.07 billion and $1.08 billion, comfortably ahead of the Street’s $994.47 million. The company also guided for adj. EPS of $0.57 to $0.59, well above the $0.50 consensus estimate.
Scanning the results, Wedbush analyst Daniel Ives is impressed. “Datadog put out robust 1Q26 results with an outstanding guidance that blew Street expectations out of the water as the software giant capitalizes across its new and existing customers while capitalizing on its AI-native cohort,” the 5-star analyst said.
Management highlighted particularly strong spending trends among AI-native customers. Around 6,500 customers, representing roughly 20% of the total customer base, are using one or more of Datadog’s AI integrations, yet this cohort accounts for about 80% of total ARR, underscoring how heavily AI-focused companies are investing in software platforms with strong AI capabilities.
The AI investments have also continued to bear fruit. Agent investigations more than doubled quarter-over-quarter, activity within its observability products tripled sequentially, and usage of the company’s MCP server tools increased about 4x QoQ, reflecting “robust demand for software products and services in the age of AI.”
Additionally, the company secured new agreements with two of the world’s largest AI research teams to enhance and optimize training and inference workflows.
Against a backdrop of a segment seemingly under pressure from AI, Ives thinks Datadog’s report marks an important moment for the software sector, helping counter the “AI ghost trade” narrative by showing that AI monetization is becoming a near-term reality. As enterprise software platforms remain deeply embedded across data, security, IT architecture, and organizational workflows, infrastructure companies are increasingly integrating AI and agentic capabilities into everyday operations to drive long-term profitable growth. “Overall,” Ives summed up, “we view this as a transformational print/guide for DDOG as the company continues to demonstrate that AI is a powerful demand catalyst rather than a disruptive threat with mission-critical positioning across cloud migration, digital transformation, and now AI training/inference workloads creating a multi-year runway for accelerating growth and continued share gains.”
Bottom line, Ives maintained an Outperform (i.e., Buy) rating on the shares, and raised his price target from $190 to $220, implying the stock will gain another 18% in the months ahead. (To watch Ives’ track record, click here)
Most other analysts back that stance. With an additional 34 Buys and 1 Hold and Sell, each, the stock claims a Strong Buy consensus view. However, the surge has now taken the shares beyond the $176.39 average price target. With this in mind, watch out for more price target hikes, or rating downgrades shortly. (See DDOG stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.