Morgan Stanley Optimistic on Software Stocks Growth Potential
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Apr 16 2026
0mins
Source: seekingalpha
- Healthy Demand Environment: Despite a 15% decline in infrastructure software stocks over the past month, Morgan Stanley analysts noted a healthy demand environment heading into Q1, with strong public cloud spending and software development growth expected for 2026, indicating a gradual recovery in market confidence for software stocks.
- Optimistic Outlook for Datadog: Morgan Stanley has an Overweight rating and a $180 price target on Datadog, with analysts highlighting strong underlying momentum heading into Q1, predicting revenue growth could accelerate to over 30%, suggesting a favorable stock reaction if results meet expectations.
- Strong Performance from JFrog and Palantir: JFrog also received an Overweight rating with a $70 price target, as analysts noted strong momentum and expected reacceleration in Q1; Palantir enters Q1 with an Equal-weight rating and a $205 target, supported by strong fundamentals and increasing customer adoption, making its revenue goals increasingly credible.
- Challenges for Atlassian and Dynatrace: While Atlassian is expected to exceed revenue growth expectations in Q3, analysts remain cautious about its future performance, and Dynatrace needs to provide stronger evidence of sustained annual recurring revenue acceleration, facing a higher bar for re-rating.
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Analyst Views on DDOG
Wall Street analysts forecast DDOG stock price to fall
33 Analyst Rating
30 Buy
3 Hold
0 Sell
Strong Buy
Current: 225.240
Low
140.00
Averages
207.39
High
255.00
Current: 225.240
Low
140.00
Averages
207.39
High
255.00
About DDOG
Datadog, Inc. provides an observability and security platform for cloud applications. The Company’s SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management, user experience monitoring, cloud security and many other capabilities to provide unified, real-time observability and security for its customers’ entire technology stack. Its platform consists of products that can be used individually or as a unified solution and includes a marketplace where customers can access products built by its partners on top of the Datadog platform. Its products include Infrastructure Monitoring, Application Performance Monitoring, Log Management, Digital Experience Monitoring, Continuous Profiler, Database Monitoring, Data Observability, Universal Service Monitoring, Network Monitoring and others. It owns Metaplane, an end-to-end data observability platform that provides advanced machine learning-powered monitoring and column-level lineage.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Rising Market Demand: Microsoft's plan to cancel Claude Code licenses highlights the increasing need for companies to track AI usage and costs, presenting a substantial market opportunity for Datadog that could drive demand for its software services.
- Increased Customer Spending: Existing customers are spending over 20% more on Datadog services compared to last year, indicating enhanced customer stickiness and further boosting its revenue and market share.
- Healthy Cash Flow: Datadog generated $915 million in free cash flow last year, achieving a 27% cash flow margin, and despite reinvesting 45% of its revenue into R&D, it demonstrates strong profitability and a solid financial position.
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- Rising Market Demand: Microsoft's plan to cancel Claude Code licenses highlights the increasing need for companies to track AI usage and costs, presenting a substantial market opportunity for Datadog that could drive demand for its software services.
- Increased Customer Spending: Existing customers are spending over 20% more on Datadog services compared to last year, indicating enhanced customer stickiness and further boosting its revenue and market share.
- Healthy Cash Flow: Datadog generated $915 million in free cash flow last year, achieving a 27% cash flow margin, and despite reinvesting 45% of its revenue into R&D, it demonstrates strong profitability and a solid financial position.
See More
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- Accelerated Growth: Snowflake's fiscal Q1 2026 product revenue surged 34% year-over-year to $1.33 billion, showcasing strong growth driven by AI, exceeding market expectations and indicating that AI is not a threat to software companies.
- Significant Customer Growth: The company added 616 net new customers, a 38% increase year-over-year, while net revenue retention rose from 125% to 126%, reflecting customer trust in the Snowflake platform and laying a solid foundation for future revenue growth.
- Improved Profitability: Snowflake's non-GAAP operating margin expanded from 9% to 12%, with adjusted earnings per share rising from $0.24 to $0.39, demonstrating that the company is enhancing profitability alongside rapid growth, boosting market confidence.
- Strategic Partnership Expansion: The company signed a new $6 billion five-year agreement with Amazon AWS and expanded its partnership with OpenAI, further solidifying its market position in the AI sector and indicating strong growth potential ahead.
See More
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- Accelerated Revenue Growth: Snowflake's latest fiscal quarter saw product revenue grow 34% year-over-year to $1.33 billion, accelerating from 30% in the previous quarter and 26% a year earlier, indicating a strong performance amidst the AI boom that could reshape market perceptions of software companies' futures.
- Significant Customer Growth: The company added 616 net new customers, a 38% increase year-over-year, while net revenue retention rose from 125% to 126%, demonstrating increased usage of the Snowflake platform among existing clients, which enhances market competitiveness and customer loyalty.
- Improved Profitability: Snowflake's non-GAAP operating margin expanded from 9% to 12%, with adjusted earnings per share rising from $0.24 to $0.39, reflecting the company's ability to improve profitability alongside revenue growth, thereby boosting investor confidence.
- Optimistic Outlook: Management raised its full-year product revenue guidance to $5.84 billion, or 31% growth, and signed a new $6 billion five-year agreement with Amazon AWS, indicating strong confidence in future demand and further solidifying its leadership position in the AI space.
See More
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- Significant Revenue Growth: Datadog's Q1 revenue surged 32% year-over-year, surpassing $1 billion for the first time in a quarter, highlighting its robust performance in the cloud monitoring market and reinforcing its market leadership.
- Increased Customer Spending: Existing customers are spending over 20% more on Datadog services compared to last year, indicating the successful implementation of its land-and-expand strategy, which enhances customer retention and revenue stability.
- Healthy Cash Flow: The company generated $915 million in free cash flow last year, achieving a 27% free cash flow margin while maintaining $3.7 billion in net cash, demonstrating strong financial health and ongoing reinvestment capability.
- Rising Competitive Pressure: Despite Datadog's strong performance in cloud monitoring, competitive pressure from cloud providers like Amazon AWS and Microsoft Azure remains significant, which could impact its pricing power and future market share.
See More
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- Significant Price Surge: Datadog's shares jumped 8% in the afternoon session, closing at $245.82, reflecting a 9.1% increase from the previous day, indicating strong market confidence in accelerating AI demand.
- Industry Impact: Snowflake's Q1 results led to a 36% stock increase on May 28, while Dell's earnings revealed a 757% year-over-year growth in AI server revenue, demonstrating that enterprises are deploying AI at scale, driving dual demand for both software and hardware.
- Supportive Market Environment: The 10-year Treasury yield fell to 4.45% following reports of a US-Iran truce extension, reducing the discount rate on long-duration growth stocks, providing additional market support for companies like Datadog.
- Attractive Investment Returns: Datadog's stock has risen 84% since the beginning of the year, reaching a new 52-week high, with investors who bought $1,000 worth of shares five years ago now seeing their investment grow to $2,678, showcasing its strong growth potential.
See More
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- Tech Stocks Lead Gains: Dell Technologies surged 32% after reporting Q1 total revenue of $43.84 billion, significantly exceeding the consensus estimate of $35.52 billion, and raised its 2027 revenue forecast to between $165 billion and $169 billion, indicating strong market demand and growth potential.
- Positive Economic Data: The May Chicago PMI rose by 13.5 to 62.7, far surpassing expectations of 50.3, marking the fastest expansion pace in 4.25 years, which further bolstered market confidence in stocks.
- Oil Price Decline Benefits Stocks: Crude oil prices fell over 1% to a five-week low due to a preliminary agreement between the US and Iran, easing inflation concerns and supporting the upward trend in the stock market.
See More
