Datadog Soars, Dynatrace Slumps: Gap Widens in AI Agent Stocks

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.

Artificial intelligence (AI) agents are becoming an increasingly important talking point in the tech world. Using AI agents, enterprises have the opportunity to automate repetitive and lower-value-add workflows. The presumed benefits of this are twofold: lowering costs and spending more time on higher-value tasks.

However, AI agents are unlikely to see huge adoption overnight. Rather, organizations will look to install them carefully over time, prioritizing the need to effectively monitor and correct their performance.

That is where two key stocks come in: Datadog NASDAQ: DDOG and Dynatrace NYSE: DT. Their observability platforms provide the necessary tools to implement AI agents at scale. Notably, both of these software stocks faced considerable pressure in late 2025 to early 2026, getting caught up in the general software sell-off. However, more recently, Datadog has taken off, while Dynatrace sits near its 52-week low.

Given this, 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 this question.

Datadog Soars After Highly Impressive Q1 Report

In 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 big contributor to this was Datadog’s blockbuster Q1 2026 earnings report.

The firm saw 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 by 30% to 60 cents. Both figures walloped 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 firm the ability to target federal agency customers that handle the government’s most sensitive data. Ultimately, this report allowed Datadog shares to shoot up by over 31% in a single day.

Datadog also received some massive 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. This figure implies upside closer to 10%.

Dynatrace Sinks on Uninspiring Growth Despite Strong Profitability

Meanwhile, competitor Dynatrace has yet to stage a large recovery. The stock is trading below $40 and is only moderately up from its 52-week low near $32. Shares remain down over 35% from highs reached in February 2025 of around $62.

The reaction to Dynatrace’s report was the opposite of Datadog’s. Shares fell over 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 by 19% YOY (16% in constant currency) to $531.72 million, $10.7 million ahead of expectations. Adjusted EPS improved by 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 firm just completed its FY2026, with its fiscal reporting period being 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 Valuation

Datadog and Dynatrace are on somewhat opposite sides of the same coin. Dynatrace has a higher adjusted operating margin than Datadog. However, growth is forecast to decelerate off a much smaller base compared to Datadog, while revenues at Datadog are larger and growth is accelerating. In general, tech markets 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 being over four times higher than Dynatrace’s. Given these factors, neither stock clearly appears better positioned for success than the other. Datadog has a premium valuation, but this 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.