Datadog (DDOG -4.78%) stock is losing ground in Wednesday's trading. The company's share price was down 4.9% as of 2:30 p.m. ET. At the same point in the day's trading, the S&P 500 index was down 0.9%, and the Nasdaq Composite index had declined 1.2%.

After the market closed yesterday, Stifel published new coverage on Datadog. The firm downgraded its rating on the stock from buy to hold and cut its one-year price target from $165 per share to $140 per share. As of this writing, Stifel's new target implies downside of roughly 3.5%.

Datadog slumps on new outlook from Stifel

Datadog has been serving up encouraging sales growth, with revenue climbing 26% year over year to reach $690 million in the third quarter. But Stifel's analysts think that momentum is poised to slow in the near term. The firm also expects that the software specialist will soon be facing some new margin pressures.

Stifel thinks that Datadog is essentially fully valued in its current price range, and it sees potential downside risk with quarterly reports in 2025. The firm's analysts think there's a risk that the business's Q3 performance may have set a bar that's too high to be matched or exceeded with subsequent reports. Additionally, Stifel thinks that OpenAI's moves to optimize its usage of Datadog's services could mean less sales opportunities.

What's next for Datadog?

Datadog is scheduled to publish its fourth-quarter earnings results and host a conference call before the market opens on Feb. 13. With its last update, the company guided for Q4 sales to come in between $709 million and $713 million.

At the midpoint of the guidance range, that would mean delivering year-over-year sales growth of 20.5% compared to the $590 million revenue posted in last year's quarter. But as highlighted in Stifel's recent coverage on the stock, Wall Street may be looking for the company to significantly exceed that guidance range. Meanwhile, the company guided for non-GAAP (adjusted) earnings per diluted share to come in between $0.42 and $0.44. For comparison, the business posted adjusted earnings of $0.44 per share in last year's quarter.

Datadog could be poised to see continuing AI-related demand tailwinds for its cloud monitoring and security platform, but the company also trades at a highly growth-dependent valuation. With the company priced at roughly 73 times expected annual earnings and 15 times expected sales, the stock could be primed for big moves depending on how its upcoming Q4 report shapes up.