We recently published a list of 12 High Growth Large Cap Stocks to Buy Now. In this article, we are going to take a look at where Datadog, Inc. (NASDAQ:DDOG) stands against other high growth large cap stocks.
BlackRock highlighted that its portfolio managers are broadly optimistic about US equities. Its portfolio managers opine that there is still some expected upside potential, despite the steep US stock valuations. However, the contrast between lagging European economic growth, and stock performance, is stark. The US Fed decided to reduce the policy rate by another 25 bps in a recent meeting as the apex bank sees inflation moving closer to its target of 2%.
However, the financial conditions remain loose after a historically sharp tightening cycle. The firm believes that such an unusual backdrop strengthens its view that the environment is being dominated by structural forces and not by a typical business cycle.
Overall, the firm remains overweight on the US given the positive view on the AI theme. The valuations for AI beneficiaries have strong backing as technology companies continue to beat high earnings projections. The asset manager believes that falling inflation continues to ease pressure on corporate profit margins.
High-Single Digit Growth in S&P 500
Goldman Sachs Research’s projections for the S&P 500 Index of stocks remain broadly the same as it was before Trump’s win. As per David Kostin, the chief US equity strategist at the firm, the S&P 500 is expected to reach 6,300 in the upcoming 12 months. The researchers expect growth in EPS of 11% in 2025 and 7% in the following year. That being said, David Kostin highlighted that the estimates might change as and when the new administration’s policy agenda gets revealed. Overall, strong earnings growth is expected to fuel continued equity market appreciation into next year.
Historically, the S&P 500 index generated a median return of 4% between election day in November and calendar year-end, as per Goldman Sachs. Together with the resilience in broader economic growth data and the expectation for further rate cuts, the near-term outlook for US equities remains healthy, as per Kostin.
Several investors remain focused on trade policy, and Mr. Trump might have plans to implement some of the tariffs without legislation. Goldman Sachs believes that Trump will impose tariffs on imports from China. These are expected to average an additional 20 percentage points. Furthermore, European companies can face tariffs. The large investment bank also highlighted that, during Trump’s previous administration, domestic-facing and defensive industries, including utilities, telecom services, and real estate, outperformed. On the other hand, the stocks of automobiles, capital goods, and technology hardware underperformed.
The company believes that M&As might increase under Trump’s presidency. Though the policy uncertainty will take time to recede, there are expectations that antitrust regulation will be more relaxed. Moreover, the continued economic expansion and higher confidence among CEOs might result in increased corporate combinations. Approximately, $4 trillion of corporate spending in the next calendar year might roughly get evenly split between returning cash to shareholders and growth investments (such as CapEx, R&D, and M&A).
A close-up of a laptop with a software engineer coding on the monitor.
Our Methodology
To list the 12 High Growth Large Cap Stocks to Buy Now, we sifted through several online rankings and a screener. We extracted the stocks that have a healthy 5-year revenue growth and a market cap of more than $10 billion. Finally, the stocks were ranked in ascending order of upside potential, as of 12th November.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Datadog, Inc. (NASDAQ:DDOG) offers software solutions. It provides a cloud-based monitoring and analytics platform that integrates and automates infrastructure monitoring, application performance monitoring, and log management for the real-time observability of customers.
Datadog, Inc. (NASDAQ:DDOG)’s ability to offer unified insights throughout the diverse technology stacks appears to be well-received by customers, mainly as organizations ramp up their digital transformation initiatives. The company’s strong emphasis on innovation is the cornerstone of its strategy. It continues to expand its product portfolio, with a strong focus on Al and ML capabilities. Notably, recent introductions consist of LLM Observability for monitoring Al applications, Bits Al for streamlining incident response, and Live Debugger in order to help developers in production environments.
These new offerings place Datadog, Inc. (NASDAQ:DDOG) in a strong position to capitalize on the increased demand for Al-driven observability solutions. The new product launches include monitoring for Oracle Cloud and the On Call service. With companies increasingly adopting Al and ML technologies, the requirement for sophisticated monitoring and analytics tools should grow. This should open up new revenue streams for Datadog, Inc. (NASDAQ:DDOG). Its expansion into adjacent markets, including cloud security and developer experience, should also act as a potential tailwind.
Apart from the growth catalysts mentioned, the rise of Al and ML applications should also boost demand for Datadog, Inc. (NASDAQ:DDOG)’s services. The company expects strong growth, stemming from the positive trends in digital transformation and cloud migration. Furthermore, the company expects to maintain healthy demand for its security and service management products.
Analysts at TD Cowen upped their price target on the shares of Datadog, Inc. (NASDAQ:DDOG) from $160.00 to $165.00, offering a “Buy” rating on 8th November. Baron Funds, an investment management company, released its Q2 2024 investor letter. Hereis what the fund said:
“In our view, the enterprise software winners will have to be better at delivering AI services and features than build-your-own AI tools, and they will have to use their incumbency or leadership advantages to ward off upstarts. We believe the winners will be the ones that have a well-established product development culture of innovation and iteration; differentiated proprietary, industry, and customer data; distribution advantages with large customer bases, successful go-to-market efforts, and key partners; well-designed workflows where AI improves the user interface, intelligent predictions/recommendations, and automation; and established always-on connectivity and feedback from their customers; among other things.
Overall, DDOG ranks 11th on our list of 12 High Growth Large Cap Stocks to Buy Now. While we acknowledge the potential of DDOG as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than DDOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
