Datadog Joins S&P 500, Triggering a New Wave of Upside

Key Points

• Datadog is being added to the S&P 500 index, placing it in the sights of new institutional buyers needing to rebalance their holdings.
• The recent price action shows investors that this stock has already justified plenty of upside even before the news.
• Its financials will point investors to the company's growth engine, which is showing double-digit growth with no signs of slowing down.

There comes a moment in every early-stage company when investors start to see the reward of being patient with their holdings, and that is when the early stage shifts into a “growth spurt” gear. When this happens, market share and financial metrics grow large enough that the company’s stock earns its place in the higher ranks of the market, and it stops trading on the under-covered and obscure exchanges of the marketplace.

Today’s example is that of Datadog Inc. NASDAQ: DDOG. This company has grown sufficiently in these key metrics to be included in the broader S&P 500 index, which typically excludes smaller technology stocks like this one.

Datadog's $53.7 billion company status and rapid financial growth make it an exception. It remains a potential compounder for any investor’s portfolio.

Of course, now that the stock is trading at new highs, some investors might be wary of buying into this story today, feeling like they missed the boat on this one. However, with a new addition to the index comes great new benefits, some of which will only be amplified by the company's recent financial performance.

What an S&P 500 Addition Truly Means

As Datadog becomes part of the S&P 500, institutional investors and big asset managers will be required to purchase the stock in the coming months, since they must allocate a specific percentage of their assets to Datadog.

Multiplying this effect across billions of dollars' worth of capital can create massive buying pressure for Datadog stock and bring in just the right type of fuel to keep it testing higher and higher prices as well. In fact, some of these institutional buyers were already expecting this event to take place, so they got in ahead of the curb this time.

Those from UBS Asset Management decided to boost their previous holdings in Datadog stock by 48.3% as of mid-May 2025, bringing their entire stake up to $281.4 million, making them the largest institutional holder today. Once the S&P 500 addition takes effect, investors will notice increased buying from UBS and many other players as well.

This mandatory addition will spark the buying, as will the stock’s recent momentum and price action. After a one-month rally of up to 27.8%, Datadog stock now trades at up to 92% of its 52-week high levels with no signs of slowing down.

If the stock retests (or breaks) its previous 52-week high price, new institutional buyers will likely start to pile in again as their common momentum strategies are triggered on the buy side of the equation. This is a tailwind that investors need to consider today.

Fundamentals Push on for Datadog Stock

All of these bullish factors would be nothing but a nice story without any fundamental backing, which is why investors need to dig a bit deeper into Datadog's financials to really figure out whether the stock can justify all of these positive views and expectations in the coming months.

When examining the most recent quarterly earnings results, investors can begin to tick off a checklist of positive developments, enough to put them on the right side of the market this time. Starting with revenue, Datadog reported up to $762 million for the quarter, representing a 25% net growth rate compared to the same quarter last year.

Double-digit revenue growth is one thing, but how the company makes this revenue happen is even more important. With 3,770 users generating over $100,000 in annual recurring revenue (ARR), it is one of the key metrics technology investors want to see.

This means that Datadog receives subscription revenue from its services, creating a very stable and predictable financial environment. This, in turn, enables management to reinvest and manage capital more effectively, as well as for Wall Street analysts to project financials and valuations moving forward.

That effect is evident in the company’s operating cash flow measure, which increased to $271.5 million this quarter, compared to $212.3 million for the same quarter a year ago. For technology companies, a growing base of operating cash flow means a suite of added shareholder benefits down the line.

This is where wealth compounding begins to take place, as Datadog can use this cash flow to pay down its debts, boost earnings per share (EPS), initiate a stock buyback program, or make new acquisitions to further enhance growth. All told, Datadog has earned its place in the S&P 500, and these metrics should also earn it a place in every investor’s watchlist.