Datadog (DDOG) is falling 5% after investment bank Stifel downgraded the shares to Hold from Buy today.

Datadog "provides an observability and security platform for cloud applications."

A close-up of a computer monitor showing a complex web of cloud-based technology.

Why Stifel Cut Its Rating on DDOG

Stifel expects DDOG's challenges to hinder its revenue growth and profit margins this year. Noting that the company's forward Enterprise Value/Revenue ratio is "a fairly full" 13.5 times, the investment bank believes that the shares' risk/reward ratio is "less than favorable" at this point.

Although OpenAI probably renewed its deal with DDOG for this year, the firm's first-quarter revenue may drop versus the previous quarter due to changes that were likely included in the contract between the two companies, Stifel believes.

Stifel slashed its price target on DDOG to $140 from $165.

Morgan Stanley Previously Downgraded Datadog

On Jan. 16, Morgan Stanley cut its rating on the firm to Equal-Weight from Overweight. The bank predicted that the company's guidance would call for 20% revenue growth this year, slightly below analysts' estimate (as of Jan 16) of a 22% increase.

However, Morgan Stanley maintained a $143 price target on the shares.

The Recent Price Action of DDOG

In the last month, the shares have added 1.2%, while they have climbed 13% in the last three months.

While we acknowledge the potential of DDOG, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DDOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.