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This Week's Bonus Article
Datadog Soars, Dynatrace Slumps: Gap Widens in AI Agent StocksReported by Leo Miller. Article Posted: 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 already made me a “wealthy man”
Artificial intelligence (AI) agents are becoming an increasingly important talking point in the tech world. By using AI agents, enterprises can 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 massive adoption overnight. Organizations will likely roll them out carefully over time, with a strong focus on the need to effectively monitor and correct their performance.
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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 came under considerable pressure in late 2025 and early 2026, getting caught up in the broader software sell-off. More recently, however, 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 went from beaten down to hitting all-time highs. In early April, shares had fallen as much as 47% from their previous 52-week high. The stock is 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 easily 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 also received FedRAMP High certification from the U.S. federal government, giving it the ability to target federal agency customers that handle the government’s most sensitive data. Ultimately, the report sent Datadog shares up more than 31% in a single day. Datadog also received some 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 modestly higher, near $222. That suggests upside 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 on sales and adjusted EPS. Revenue increased 19% YOY (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 fiscal year 2027 (FY2027). The company just completed FY2026, and its fiscal reporting period runs several quarters ahead of the standard calendar year. It expects sales of $2.33 billion at the midpoint and adjusted EPS of $1.94 at the midpoint. These figures 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, modestly below the MarketBeat consensus target near $47. That updated average target implies about 15% upside. Datadog and Dynatrace: High Growth Versus a Depressed ValuationDatadog and Dynatrace sit on 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 revenue is larger and its 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 the 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 than the other. Datadog carries a premium valuation, but that does not appear out of step with 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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