Investing.com -- Datadog Inc (NASDAQ:DDOG) was downgraded to “Equal-weight” by analysts at Morgan Stanley (NYSE:MS), as concerns over slower growth in the first half of 2025, coupled with its high valuation impacts the risk/reward balance.

The company's transition from a system of alerting to a system of action, with expansion into cloud security and observability, remains a highly compelling long-term opportunity.

But industry checks suggest that while Datadog is executing well, the tight budget environment presents challenges. Analyst noted modest risks to the company's initial FY25 revenue growth outlook, which calls for roughly 22% growth.

Further pressure may come from AI-native customers potentially optimizing spend after a period of rapid expansion, leading to more favourable pricing terms and a deceleration in growth.

With shares near the price target of $143, Datadog’s valuation at 13 times on 2026 sales, is seen as fair, in line with peers in the emerging platform space.

Despite the downgrade, analysts remain optimistic about the long-term prospects and plan to revisit the stock if there is a pullback or earlier-than-expected contributions from the AI inference cycle.

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