Datadog Emerges as BofA Top Software Pick Ahead

Key Moments

BofA Elevates Datadog Ahead of Q2 FY2026 Earnings

Investing.com — Bank of America selected Datadog as its preferred software name going into the company’s second-quarter fiscal 2026 earnings release on August 6, pointing to growing conviction driven by resilient demand patterns and expanding artificial intelligence-related opportunities.

The firm kept its Buy recommendation on Datadog, underscoring three main drivers for its positive stance: internal data analysis indicating healthy demand, shifting dynamics in large customer renewals, and Datadog’s strengthened value proposition in AI agent observability in light of recent sector developments.

Revenue Outlook Supported by AWS Correlations

Bank of America reported increased confidence in Datadog’s revenue trajectory for the second quarter after reviewing historical relationships between Datadog’s revenue growth and the performance of Amazon Web Services.

According to the firm, its second-quarter projection implies a compression relative to past growth multipliers and net-new revenue take rates derived from that relationship, which it interprets as signaling potential upside to current assumptions. Bank of America argued that a revenue beat in the second quarter could act as a catalyst for the stock, particularly if growth clearly improves from the 32% year-over-year increase reported in the first quarter of fiscal 2026.

AI Customer Renewals Viewed as a Net Positive

Addressing investor worries around large AI customer renewals, Bank of America described concerns about volatility as exaggerated. The firm acknowledged that AI labs may push for improved commercial terms or more efficient spending at renewal, but it framed the broader trend as favorable.

Bank of America pointed out that Datadog has added more frontier-lab relationships, including two hyperscaler AI-research agreements and five customers with AI-related spending above $10 million. The bank argued that this broader base helps limit concentration risk while AI training activity introduces additional market avenues.

AI Agent Observability Expands Datadog’s Opportunity

Bank of America also emphasized that recent developments across the industry highlight a rising requirement for observability of AI agents as these systems gain autonomy. The firm said enterprises need deeper insight into how AI agents operate and interact, especially when problems occur.

Datadog’s focus on agent observability was cited as a key strategic advantage, positioning the company to capture demand as monitoring increasingly extends from traditional infrastructure and applications into AI-centric workflows, thereby broadening its long-term growth potential.

Analyst Price Targets Move Higher

Alongside Bank of America’s commentary, Datadog has recently attracted additional positive analyst actions. Morgan Stanley and Citi both raised their price targets on the stock to $300. Benchmark, meanwhile, reiterated its Buy rating with a $330 price target, noting that it expects the company to outperform consensus estimates.