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Datadog (DDOG) shares rose about 3% premarket after Bernstein upgraded the cloud monitoring group to Outperform on strong AI demand, lifting its target to $350.
- Bernstein moved Datadog to Outperform from Market Perform and raised its target to $350 from $237.
- Shares gained about 3% premarket and extended to more than 5% in morning trade, near $259 to $262.
- Enterprise token consumption at the largest AI labs rose at least 50% quarter on quarter, by Bernstein's alternative data.
Lead
Datadog (NASDAQ: DDOG) rose in premarket trading on Monday, October 19, 2026, after Bernstein reversed its earlier downgrade and upgraded the stock to Outperform. The firm raised its price target to $350 from $237, a lift of about 48%. The move put the observability software provider among the day's notable ai stocks in the software sector. Shares gained about 3% before the open and widened the advance in the regular session. By late morning they traded near $262, up about 6% from a prior close of roughly $247.What Happened to Datadog Shares?
Datadog shares rose about 3% premarket and more than 5% in morning trading, outpacing the software sector. The stock traded around $259 in the early session and near $262 later in the morning.
Peers moved less. Snowflake (SNOW) rose about 3% to roughly $317, and Cloudflare (NET) added less than 1% to about $299. A cloud software benchmark gained about 2%, and the Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100, rose about 1.2%. The size of Datadog's move relative to those gauges points to a stock-specific catalyst.
The upgrade followed a separate action earlier in the week, when Mizuho raised its Datadog target to $330 from $300.
Why Did Bernstein Reverse Its Downgrade?
Bernstein reversed course because AI-related consumption at Datadog's largest customers has grown faster than the firm projected last quarter. Its alternative data show enterprise token consumption among the largest AI labs rising at least 50% from the prior quarter, with smaller companies built around AI possibly growing faster. Consumer AI agent launches, including Muse and Dots, added to the picture.
The earlier downgrade rested on a cut of about $100 million in annual recurring revenue from Datadog's largest "Born in AI" customer, along with signs of softness in its traditional customer base. That base makes up about 85% of revenue. The firm had expected growth from the biggest AI labs to cool sharply. Net new annual recurring revenue growth was forecast to slow to 20% to 30% in 2027 and beyond, from 80% to 90% this year. That slowdown has not appeared in the data.
Strategic Context
Datadog sells monitoring, security and analytics tools that track the health of cloud applications. AI workloads add to demand because they raise the number of services, models and data pipelines that customers must observe. That gives the company direct exposure to infrastructure spending by AI developers and by enterprises deploying AI agents.
The company's second-quarter results showed the same trend. Revenue reached $1.12 billion, up 35.6% from a year earlier. Non-GAAP earnings were $0.65 per share, its fifth straight beat. Customers with annual recurring revenue above $100,000 rose 23% to 4,720. Management lifted its full-year 2026 revenue guidance to $4.45 billion to $4.47 billion.
What Comes Next for Datadog?
The next test is third-quarter earnings, due in early November. Guidance calls for revenue of $1.135 billion to $1.145 billion. Investors will focus on two figures: how much of new revenue comes from AI-native customers, and whether the traditional customer base stabilizes after the softness flagged last quarter.
Customer concentration is the main risk. The cut at its largest AI customer showed how a single account can move annual recurring revenue. Bernstein's revised view assumes that the broader AI customer group offsets such swings.
Outlook
Bernstein's change of stance, together with Mizuho's higher target, marks a shift in sentiment toward Datadog after a period of concern over AI customer concentration. The stock's gain of more than 5% on the day outpaced software peers. The November earnings report will show whether the consumption growth in the alternative data reaches reported revenue.
Mentioned tickers: DDOG, SNOW, NET, QQQ
