This Analyst Just Downgraded Datadog Stock. Here's Why.

Datadog (DDOG) pulled back on Monday after Bernstein’s senior analyst Peter Weed downgraded the cloud observability specialist to “Market Perform.”

While he paradoxically raised the price objective to $226, acknowledging DDOG’s structural run-up, the new target sits about 13% below its previous close. 

At the time of writing, Datadog stock is up a remarkable 87% versus the start of this year.

Why Bernstein Turned Dovish on Datadog Stock

In his research note, Weed dubbed Datadog an AI winner but warned of slowing demand within the company’s core business. 

Non-AI revenue makes up about 85% of DDOG’s topline, making it crucial for its financial health. But Bernstein’s research suggests growth within this baseline segment is on track to peak in Q3.

In the final quarter of this year, the firm’s analyst expects Datadog Inc’s non-AI growth to actually decelerate by at least 100 basis points. 

This means DDOG shares are headed into a growth air pocket that may weigh on sentiment. 

Note that Datadog’s relative strength index (RSI) also currently sits in the mid-60s, indicating that the stock is now approaching “overbought” territory. 

DDOG Shares Are Trading at a Massive Premium

According to Peter Weed, expectations for Datadog shares are overly optimistic despite signs that growth at some artificial intelligence labs is beginning to plateau.

In Q4, the company’s sales growth could even slip below 30% amid increasingly challenging year-over-year comparisons, he told clients. 

Such a deceleration will hit DDOG particularly hard given it’s trading at a rather stretched forward price-to-earnings (P/E) multiple of about 406x at the time of writing, the analyst added. 

That said, Barchart maintains a “100% BUY” opinion on the cloud observability firm, signaling technical momentum remains in favor of the bulls. 

What’s the Consensus Rating on Datadog Inc

Investors should also note that Bernstein isn’t the only Wall Street firm that believes the DDOG stock price rally has gone a bit too far in 2026. 

According to Barchart, while the consensus rating on Datadog remains at “Strong Buy,” the mean price target of $244 signals potential downside of about 4% from current levels.