Investing.com -- Bernstein has raised its rating for Datadog to Outperform from Market-Perform in a note on Monday, lifting its price target to $350 from $237 per share.

Analyst Peter Weed told investors that demand from AI-native customers is far stronger than he expected.

The analyst previously downgraded the stock ahead of the last quarter. At the time, he was concerned about a roughly $100 million ARR contract downsizing by Datadog’s largest “Born in AI” customer, which Bernstein believes is OpenAI, and about weakness in its traditional customer base, which makes up about 85% of revenue.

Weed said those traditional customer signals ended the third quarter even weaker than expected. However, the AI picture has improved sharply.

“Clearly our imagination failed us -- our alt data signals suggest enterprise token consumption appears to have grown at least 50% QoQ among the largest AI Labs (and perhaps even faster in their smaller “Born in AI” customers),” he wrote.

Bernstein also sees potential upside from traditional customers and newer products, though it has not included this in its model.

The firm said rising consumer use of AI agents could lift consumption among internet and commerce customers. It added that Datadog’s SRE AI agent appears well timed for cloud operations teams managing an influx of AI-generated code.

“We could imagine a demand bubble well in excess of the more stable demand included in this update,” Weed said.

The firm raised its near-term revenue growth expectations by about 7 percentage points and extended their duration.

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