Investing.com -- Jefferies cut Datadog to Hold from Buy on Tuesday, citing valuation concerns after the stock's sharp rally this year, even as the firm maintained its fundamental view of the company as an AI beneficiary.

Analyst Brent Thill told investors that the firm’s "thesis on the company being an AI beneficiary and category leader has largely played out in 1H26, with shares up +94% YTD on strong execution and growth re-accelerating from 25% in 1Q25 to 32% in 1Q26."

At approximately 18x EV/CY27 revenue, the firm said Datadog "trades at a 4-turn premium to SNOW, leaving little cushion for any execution slippage," adding that with the stock well above its prior price target, it would "look to get constructive again at a better entry point."

The downgrade came as part of a broader Q2 preview in which Jefferies said the market is "transitioning away from indiscriminate negative positioning toward a more fundamentals-&-estimates-driven setup."

The firm favored Amazon, Microsoft and Atlassian heading into earnings, citing stronger cloud and AI momentum with achievable targets, while turning negative on Palantir due to "escalating comps and competition."

Jefferies proprietary Q2 partner checks point to "strong cloud demand / continued capacity shortages and solid ad spending trends," supporting positive revisions across hyperscaler and infrastructure names, though it cautioned that expectations remain elevated and setups are "more nuanced where positioning and multiples are stretched."