What Happened?
Shares of cloud monitoring software company Datadog (NASDAQ:DDOG) jumped 6.7% in the morning session after market optimism around innovators in the software as a service (SaaS) space continued to improve following strong earnings from Salesforce. The enterprise software giant showcased clear progress in capturing demand for AI solutions, signing 200 deals within a week of launching Agentforce, its new AI platform for enterprise customers. In addition, Salesforce reported thousands more deals in the pipeline, hinting at robust future growth.
Reviewing some of the numbers, Salesforce reported sales and adjusted operating income ahead of Wall Street's expectations. On the other hand, EPS and some top-line growth indicators, including billings and remaining performance obligations (RPO), fell slightly below consensus estimates, as products like Tableau, MuleSoft, and Slack revealed some weaknesses. Despite the mixed top-line result, CRM recorded double-digit growth in the Sales and Service Cloud segments, which is encouraging.
Since the onset of the AI boom, Wall Street has been craving hard data to justify the lofty projections surrounding the industry's potential. The numbers are finally trickling in, and the data suggest the AI market's trajectory might exceed initial expectations, heralding the shift from speculative hype to tangible value creation.
The shares closed the day at $165.78, up 6.9% from previous close.
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What The Market Is Telling Us
Datadog’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 13 days ago when the stock gained 7.3% on the news that data analytics software provider Snowflake reported impressive third-quarter results, which surpassed analysts' revenue, profit, and earnings expectations. The strong result is boosting sentiment in the software as a service (SaaS) space. Snowflake is relevant for Datadog because both go to market with software consumption models, which means their revenue is correlated with customer usage (as opposed to long-term contracts with set spend). The market has sometimes been cautious of these models and how resilient they may or may not be in periods of uneven IT spending. Snowflake's performance highlights that usage-based software models seem to be holding up.
Datadog is up 43.4% since the beginning of the year, and at $165.02 per share, has set a new 52-week high. Investors who bought $1,000 worth of Datadog’s shares 5 years ago would now be looking at an investment worth $4,470.
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