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Further Reading from MarketBeat Media
Datadog Soars, Dynatrace Slumps: Gap Widens in AI Agent StocksAuthored by Leo Miller. Originally Published: 5/18/2026. 
Key Points
- Datadog shares surged more than 50% in May after Q1 2026 results showed 32.1% revenue growth and earnings that beat analyst expectations.
- Dynatrace fell more than 11% on its earnings release day despite beating estimates, as its roughly 15% forward growth outlook disappointed investors.
- Datadog trades at a forward P/E more than four times higher than Dynatrace, reflecting a clear growth-versus-value tradeoff.
- Special Report: Elon Musk’s $1 Quadrillion AI IPO
Artificial intelligence (AI) agents are becoming an increasingly important topic in the tech world. With AI agents, enterprises have the opportunity to automate repetitive, lower-value workflows. The presumed benefits are twofold: lower costs and more time spent on higher-value tasks. However, AI agents are unlikely to see widespread adoption overnight. Instead, organizations will likely roll them out carefully over time, prioritizing the need to effectively monitor and correct their performance.
A recent policy development is drawing attention from income-focused investors.
According to one analyst, changes behind the scenes may be opening the door to new cash-flow opportunities designed to generate regular monthly income — without requiring investors to pick individual stocks or predict market direction. In a new briefing, he explains how the structure works and what investors should understand before considering it. Learn how these income opportunities are structured
That is where two key stocks come in: Datadog (NASDAQ: DDOG) and Dynatrace (NYSE: DT). Their observability platforms provide the tools needed to implement AI agents at scale. Notably, both software stocks faced considerable pressure in late 2025 and early 2026, getting caught up in the broader software sell-off. More recently, though, Datadog has taken off while Dynatrace sits near its 52-week low. Given that backdrop, does one name clearly represent a better opportunity than the other? Let’s examine both companies' most recent earnings reports, valuations, and analyst takes to assess the question. Datadog Soars After Highly Impressive Q1 ReportIn May, Datadog has gone from beaten down to hitting all-time highs. In early April, Datadog had fallen as much as 47% from its past 52-week high. Shares are now up over 50% in May, closing at never-before-seen levels above $200 per share. The main catalyst was Datadog’s blockbuster Q1 2026 earnings report. The company posted revenue growth of 32.1% year over year (YOY) to just over $1 billion. Growth accelerated meaningfully from 29% YOY last quarter and 25% YOY a year ago. Adjusted earnings per share rose 30% to 60 cents. Both figures handily beat analysts’ expectations of $960 million and 51 cents, respectively. Adjusted operating margin remained stable at 22%, and the company significantly boosted its full-year sales and adjusted earnings per share (EPS) guidance. Notably, Datadog received FedRAMP High certification from the U.S. federal government. This gives the company the ability to target federal agency customers that handle the government’s most sensitive data. Ultimately, the report sent Datadog shares soaring more than 31% in a single day. Datadog also received several major analyst price target increases after its report. Among analysts' updates for which MarketBeat had previous price target data, the average target moved up by a whopping 27%. The MarketBeat consensus price target on Datadog now sits near $213, implying only around 5% upside. The average target among updates is only moderately higher, near $222. That figure implies upside of closer to 10%. Dynatrace Sinks on Uninspiring Growth Despite Strong ProfitabilityMeanwhile, competitor Dynatrace has yet to stage a meaningful recovery. The stock is trading below $40 and is only modestly above its 52-week low near $32. Shares remain down more than 35% from highs reached in February 2025 of around $62. The reaction to Dynatrace’s report was the opposite of Datadog’s. Shares fell more than 11% on the day of the release. However, the stock did recover nearly 7% the following day, suggesting that some investors viewed the initial reaction as too negative. Shares fell even though Dynatrace also beat estimates for sales and adjusted EPS. Revenue increased 19% YOY, or 16% in constant currency, to $531.72 million, $10.7 million ahead of expectations. Adjusted EPS improved 24% YOY to 41 cents, above estimates of 39 cents. Dynatrace’s adjusted operating margin was 27%. Dynatrace also provided guidance for its fiscal year 2027 (FY2027). The company just completed FY2026, with its fiscal reporting period running several quarters ahead of the standard calendar reporting period. It expects to generate sales of $2.33 billion at the midpoint and adjusted EPS of $1.94 at the midpoint. These figures would imply growth of around 15% YOY and 14% YOY, respectively. Updated targets for which MarketBeat had previous data moved down meaningfully by an average of 9% after the report. The average updated target sits near $44, moderately below the MarketBeat consensus target near $47. This updated average target implies about 15% upside. Datadog and Dynatrace: High-Growth Versus a Depressed ValuationDatadog and Dynatrace are on somewhat opposite sides of the same coin. Dynatrace has a higher adjusted operating margin than Datadog. However, growth is expected to decelerate from a much smaller base than Datadog, while Datadog’s revenues are larger and growth is accelerating. In general, tech markets tend to favor higher growth over profitability, as gaining market share is one of the most important determinants of long-term success. However, the valuation gap between these two names is stark, with Datadog’s forward P/E more than four times higher than Dynatrace’s. Given these factors, neither stock clearly appears better positioned for success than the other. Datadog carries a premium valuation, but that is not out of place given its underlying fundamentals. Meanwhile, with agentic AI having the potential to be a significant long-term tailwind for both companies, it is possible that Dynatrace’s growth could inflect positively in the future. Dynatrace looks like the value play, while Datadog is the high-growth momentum option. Participating in both sides of the coin could be a reasonable strategy. |
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