What Happened:

Shares of cloud monitoring software company Datadog (NASDAQ:DDOG) jumped 7.7% in the afternoon session after Wells Fargo analyst upgraded the stock's rating from Equal-Weight (Neutral) to Overweight (Buy) and raised the price target from $130 to $150. The price target indicates a potential 15% upside from where shares traded when the upgrade was announced. After the initial pop the shares cooled down to $128.10, up 4.9% from previous close.

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What is the market telling us:

Datadog's shares are very volatile and over the last year have had 13 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 6 months ago, when the stock gained 22.4% on the news that the company reported an impressive "beat and raise" quarter. Third quarter results blew past Wall Street's expectations for revenue, non-GAAP operating profit and earnings per share. We were also impressed by Datadog's significant improvement in new large contract wins, which helped contribute to the revenue beat.

In addition, gross margin improved, and the company continued to generate positive cash flow. Looking ahead, management provided an optimistic outlook as they raised guidance for revenue, non-GAAP operating income, and EPS for the full year, all surpassing consensus estimates. Revenue guidance for the next quarter also exceeded expectations. Overall, it was a fantastic quarter that should have shareholders cheering.

Datadog is up 11.3% since the beginning of the year, and at $128.10 per share it is trading close to its 52-week high of $136.15 from February 2024. Investors who bought $1,000 worth of Datadog's shares at the IPO in September 2019 would now be looking at an investment worth $3,411.

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