Software Stocks in Bear Market Amid AI Optimism
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 5d ago
0mins
Should l Buy DDOG?
Source: Fool
- Index Decline: The S&P North American Technology Software Index has fallen 24% since its record high in September 2025, entering bear market territory as investors worry that AI coding tools may limit future software demand.
- Optimistic Market Outlook: Morgan Stanley's fourth-quarter CIO survey suggests that software will be the fastest-growing IT sector in 2026, indicating confidence in incumbent software vendors benefiting from AI disruption.
- Strong Datadog Performance: Datadog reported a 28% year-over-year revenue increase to $886 million in Q3, with remaining performance obligations rising 53% to $2.8 billion, although high R&D spending led to slower net income growth.
- Atlassian's Growth Potential: Atlassian's Q3 revenue grew 21% to $1.4 billion, with RPO increasing 42% to $3.3 billion, and the CEO noted that active users engaging with AI features exceeded 3.5 million, reflecting strong market demand.
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Analyst Views on DDOG
Wall Street analysts forecast DDOG stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for DDOG is 207.39 USD with a low forecast of 140.00 USD and a high forecast of 255.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
33 Analyst Rating
30 Buy
3 Hold
0 Sell
Strong Buy
Current: 106.730
Low
140.00
Averages
207.39
High
255.00
Current: 106.730
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.
Datadog: Recommended High-Growth Cloud Stock
- Optimistic Performance Outlook: Despite macro pressures affecting valuations, Rosenblatt lowered Datadog's price target from $200 to $185 while maintaining a Buy rating, indicating confidence in the company's fundamentals.
- Significant New Customer Growth: Datadog reported record new logo annualized bookings more than doubling year-over-year in its Q3 2025 earnings call, highlighting sustained demand for its observability platform, particularly among large enterprises.
- Successful Large Deals: The quarter featured multiple seven-figure deals with a leading European telecommunications provider and a Fortune 500 technology hardware company, underscoring Datadog's growing importance in complex organizations.
- Favorable Market Trends: As enterprises adopt AI workloads and containerized architectures, Datadog's expanding product suite and strong cross-sell capabilities position it well to benefit from cloud migration and the rising complexity of modern application stacks, even with constrained near-term budgets.
See More
Key Earnings Reports and Economic Outlook This Week
- DuPont Earnings Expectations: DuPont is expected to report earnings of $0.43 per share and revenue of $1.69 billion for Q4 2025, with analysts noting ongoing pressure in short-cycle businesses, while slight improvements in the automotive sector may influence investor sentiment.
- Cisco's AI Focus: Cisco anticipates earnings of $1.02 per share and revenue of $15.1 billion for Q2 FY2026, with CEO highlighting a major multi-year campus networking refresh, making AI infrastructure demand a critical growth driver.
- Importance of Employment Report: The January employment report is expected to show an addition of 80,000 nonfarm payrolls and an unchanged unemployment rate of 4.4%, directly impacting private consumption and U.S. GDP, making it crucial for investors to monitor.
- Consumer Price Index Insights: The January CPI is projected to increase by 2.5% year-over-year, with core CPI rising by 2.6%, providing essential inflation details despite not being the Fed's preferred measure, particularly regarding persistent shelter cost inflation.
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Key Focus Areas This Week: Jobs, Consumer Prices, Coca-Cola, CVS, Ford, McDonald's, and More
- Market Performance: The Dow Jones Industrial Average rose by 2.5% and closed above 50,000 for the first time.
- Nasdaq Struggles: In contrast, the Nasdaq Composite ended the week down 1.8%, despite a strong rally on Friday.
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Software Stocks Decline 30% Amid AI Concerns
- Market Overreaction: Nvidia CEO Jensen Huang argues that the sell-off in software stocks due to the introduction of AI tools is irrational, as these tools are designed to work alongside existing software rather than replace it, indicating a lack of rationality in the market's pessimism towards the software industry.
- Microsoft's Strong Performance: Microsoft has seen a 160% increase in paid users for its generative AI copilots in products like Microsoft 365, and despite a 27% drop from its high, its adjusted earnings grew by 24% in the last quarter, showcasing the company's robust performance in the AI sector.
- AppLovin's Rapid Growth: AppLovin's Axon machine learning engine provides a competitive edge in its ad tech software, and although its stock is down 52%, its earnings surged by 96% in the last quarter, indicating strong potential in the advertising technology space.
- HubSpot's Innovative Leadership: HubSpot has become the first CRM vendor to integrate its platform with three leading generative AI tools, and despite a 73% decline in stock price, its adjusted earnings increased by 22%, demonstrating its ongoing innovation capabilities in customer relationship management.
See More
Analysis of Potential Software Stock Rebound
- Market Panic and Rebound Opportunities: Since December 10, the iShares Expanded Tech-Software Sector ETF has fallen over 22%, officially entering bear market territory, yet Wall Street analysts believe the sell-off may be overdone, indicating some software stocks still present compelling opportunities.
- Optimistic Outlook for Datadog: The cloud monitoring and security software company Datadog has an average price target implying a 61% upside; despite its stock plummeting from nearly $200 in November to around $120, revenue is projected to grow by 20% by 2026.
- Snowflake's AI Strategy: Although Snowflake faces profitability challenges and high valuations, its average price target suggests a 63% upside, with the CEO stating that AI applications will be more nuanced, and a recent $200 million deal with OpenAI highlights its relevance in the AI space.
- Microsoft's AI Potential: Microsoft has an average price target indicating a 47% upside; despite a 23% decline in stock price over the past six months, its AI assistant Copilot boasts 15 million paid users, showcasing its significant potential in the AI landscape.
See More
U.S. Jobs and Inflation Data Set for Release
- Job Data Expectations: The U.S. is expected to add 60,000 jobs in January, up from 50,000 in December, which could influence the Fed's monetary policy direction amidst ongoing economic uncertainty.
- Inflation Metrics Analysis: The January Consumer Price Index is projected to rise by 0.29% month-over-month and 2.5% year-over-year, showing improvement but still falling short of the Fed's 2% target, potentially affecting investor rate expectations.
- Market Reaction and Risks: Recent signs of labor market weakness, including an ADP report indicating only 22,000 new private sector jobs, may heighten expectations for further Fed rate cuts, although investors remain optimistic about economic resilience.
- Stock Market Rotation Trend: A significant rotation within the stock market is underway, with the Dow Jones Industrial Average rising over 2% this week, reflecting confidence in economic recovery, despite ongoing weakness in tech stocks.
See More
Datadog: Recommended High-Growth Cloud Stock
- Optimistic Performance Outlook: Despite macro pressures affecting valuations, Rosenblatt lowered Datadog's price target from $200 to $185 while maintaining a Buy rating, indicating confidence in the company's fundamentals.
- Significant New Customer Growth: Datadog reported record new logo annualized bookings more than doubling year-over-year in its Q3 2025 earnings call, highlighting sustained demand for its observability platform, particularly among large enterprises.
- Successful Large Deals: The quarter featured multiple seven-figure deals with a leading European telecommunications provider and a Fortune 500 technology hardware company, underscoring Datadog's growing importance in complex organizations.
- Favorable Market Trends: As enterprises adopt AI workloads and containerized architectures, Datadog's expanding product suite and strong cross-sell capabilities position it well to benefit from cloud migration and the rising complexity of modern application stacks, even with constrained near-term budgets.
See More
Key Earnings Reports and Economic Outlook This Week
- DuPont Earnings Expectations: DuPont is expected to report earnings of $0.43 per share and revenue of $1.69 billion for Q4 2025, with analysts noting ongoing pressure in short-cycle businesses, while slight improvements in the automotive sector may influence investor sentiment.
- Cisco's AI Focus: Cisco anticipates earnings of $1.02 per share and revenue of $15.1 billion for Q2 FY2026, with CEO highlighting a major multi-year campus networking refresh, making AI infrastructure demand a critical growth driver.
- Importance of Employment Report: The January employment report is expected to show an addition of 80,000 nonfarm payrolls and an unchanged unemployment rate of 4.4%, directly impacting private consumption and U.S. GDP, making it crucial for investors to monitor.
- Consumer Price Index Insights: The January CPI is projected to increase by 2.5% year-over-year, with core CPI rising by 2.6%, providing essential inflation details despite not being the Fed's preferred measure, particularly regarding persistent shelter cost inflation.
See More
Key Focus Areas This Week: Jobs, Consumer Prices, Coca-Cola, CVS, Ford, McDonald's, and More
- Market Performance: The Dow Jones Industrial Average rose by 2.5% and closed above 50,000 for the first time.
- Nasdaq Struggles: In contrast, the Nasdaq Composite ended the week down 1.8%, despite a strong rally on Friday.
See More
Software Stocks Decline 30% Amid AI Concerns
- Market Overreaction: Nvidia CEO Jensen Huang argues that the sell-off in software stocks due to the introduction of AI tools is irrational, as these tools are designed to work alongside existing software rather than replace it, indicating a lack of rationality in the market's pessimism towards the software industry.
- Microsoft's Strong Performance: Microsoft has seen a 160% increase in paid users for its generative AI copilots in products like Microsoft 365, and despite a 27% drop from its high, its adjusted earnings grew by 24% in the last quarter, showcasing the company's robust performance in the AI sector.
- AppLovin's Rapid Growth: AppLovin's Axon machine learning engine provides a competitive edge in its ad tech software, and although its stock is down 52%, its earnings surged by 96% in the last quarter, indicating strong potential in the advertising technology space.
- HubSpot's Innovative Leadership: HubSpot has become the first CRM vendor to integrate its platform with three leading generative AI tools, and despite a 73% decline in stock price, its adjusted earnings increased by 22%, demonstrating its ongoing innovation capabilities in customer relationship management.
See More
Analysis of Potential Software Stock Rebound
- Market Panic and Rebound Opportunities: Since December 10, the iShares Expanded Tech-Software Sector ETF has fallen over 22%, officially entering bear market territory, yet Wall Street analysts believe the sell-off may be overdone, indicating some software stocks still present compelling opportunities.
- Optimistic Outlook for Datadog: The cloud monitoring and security software company Datadog has an average price target implying a 61% upside; despite its stock plummeting from nearly $200 in November to around $120, revenue is projected to grow by 20% by 2026.
- Snowflake's AI Strategy: Although Snowflake faces profitability challenges and high valuations, its average price target suggests a 63% upside, with the CEO stating that AI applications will be more nuanced, and a recent $200 million deal with OpenAI highlights its relevance in the AI space.
- Microsoft's AI Potential: Microsoft has an average price target indicating a 47% upside; despite a 23% decline in stock price over the past six months, its AI assistant Copilot boasts 15 million paid users, showcasing its significant potential in the AI landscape.
See More
U.S. Jobs and Inflation Data Set for Release
- Job Data Expectations: The U.S. is expected to add 60,000 jobs in January, up from 50,000 in December, which could influence the Fed's monetary policy direction amidst ongoing economic uncertainty.
- Inflation Metrics Analysis: The January Consumer Price Index is projected to rise by 0.29% month-over-month and 2.5% year-over-year, showing improvement but still falling short of the Fed's 2% target, potentially affecting investor rate expectations.
- Market Reaction and Risks: Recent signs of labor market weakness, including an ADP report indicating only 22,000 new private sector jobs, may heighten expectations for further Fed rate cuts, although investors remain optimistic about economic resilience.
- Stock Market Rotation Trend: A significant rotation within the stock market is underway, with the Dow Jones Industrial Average rising over 2% this week, reflecting confidence in economic recovery, despite ongoing weakness in tech stocks.
See More
