Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Datadog Is Leading the Bull Market in Observability
Transcript
- Lucas: Alright, let's talk about a stock that's absolutely on fire this week. Datadog is up over 21 percent in the last five trading days. And that's not just a meme bounce — there's real market logic behind it. Luna: 21 percent is huge. The Nasdaq itself is up three percent over the same period. So Datadog is massively outperforming. What's driving it? Lucas: A few things. First, the broader rotation into growth. The Russell 1000 Growth ETF, IWF, is up four and a half percent in five days. Vanguard's Growth ETF, VUG, is up four point two. So money is flowing back into high-beta names. But Datadog specifically is benefiting from something structural. Luna: The observability play, right? Companies are still trying to untangle their cloud infrastructure. Lucas: Exactly. Datadog's platform pulls data from over 600 integrations — AWS, Azure, Google Cloud, Kubernetes, you name it. As companies move more workloads to the cloud, they need a single pane of glass to monitor performance and costs. Datadog is that pane. Luna: So it's not a hype story. It's a utility. But 21 percent in a week — that's still extreme. Is this sustainable? Lucas: That's the million-dollar question. The stock trades at a pretty high multiple. But look at the numbers: revenue growth has been north of 25 percent year-over-year, and their net revenue retention is over 130 percent. That means existing customers are spending more. That's a strong signal. Luna: And they've been expanding beyond monitoring into security and incident management. That widens the moat. Lucas: Right. They're moving from a point solution to a platform. That's exactly what enterprise software investors want to hear. It's the same logic that made Salesforce and ServiceNow into hundred billion dollar companies. Luna: I also wonder if there's a tactical element here. The Magnificent Seven stocks had a rough June — they're actually in the red for the year. So money rotating out of mega-caps might be flowing into the next tier of tech. Lucas: That's a really sharp observation. Datadog is in that next tier. It's not a trillion-dollar company — its market cap is around 90 billion. But it's become a bellwether for the cloud software space. When Datadog rallies, it often signals broader confidence in enterprise IT spending. Luna: And the macro backdrop is supportive. Real GDP growth is at 2.1 percent annually, up from 0.5 percent earlier. The Fed funds rate is flat at 3.63 percent. So we're in a 'slow growth, stable rates' environment, which historically has been good for growth stocks with strong fundamentals. Lucas: Absolutely. Lower volatility in rates means less discounting pressure on future cash flows. That's why you're seeing the ARK Innovation ETF up 7.7 percent in five days. It's a sentiment shift. Luna: But here's my concern: Datadog's price to earnings ratio is still high. Even after the rally, if earnings disappoint, the downside could be sharp. Lucas: No question. It's a high-beta name. But the bull case rests on the idea that observability is becoming as essential as security. You can't run modern infrastructure without it. And if you look at CrowdStrike and Cloudflare — they've also rallied this week. There's a theme here. Luna: Cybersecurity and observability as defensive growth. That's interesting. In a bull market, defensive used to mean utilities and consumer staples. Now it's AI software and cloud platforms. Lucas: Exactly. The bull market is creating its own defensive sectors. We talked about that a few episodes ago, but Datadog is a perfect example. It's not a cyclical commodity — it's a recurring revenue subscription model with high switching costs. Luna: Switching costs are key. If you're an engineering team using Datadog to monitor production, ripping it out is a nightmare. That gives pricing power. Lucas: And that's why the market is rewarding it. You know, if today's conversation helped you think about the observability space a little differently, honestly, if it was worth a coffee to you, that link is buy me a coffee dot com slash fexingo. Listener support is what keeps this show ad-free. Luna: Yeah, it's a small way to say this content matters. We really appreciate anyone who chips in. Lucas: So back to the rally — what would you watch as a signal that Datadog's momentum is real versus just a short-term squeeze? Luna: I'd look at the options market. If call volume stays elevated and open interest builds at strikes above 270, that suggests institutional conviction. Also, watch for analyst upgrades. Lucas: Good call. And earnings are likely in early August. The whisper number will matter more than the headline. If they guide above consensus, this rally has legs. Luna: What about competition? Dynatrace and New Relic are still around. And Microsoft is embedding more monitoring into Azure. Lucas: Competition is real, but Datadog has the widest integration base. And they're innovating fast — they just launched a new ai driven anomaly detection feature. That could be a differentiator. Luna: So the bull case is: best-in-class platform, expanding TAM, high retention, and macro tailwinds. The bear case is valuation and competition. Lucas: Right. And for a bull market show, we lean into the bull case, but the smart listener keeps both in mind. Datadog is a high-conviction stock for this phase of the cycle, but you need a tolerance for volatility. Luna: Well said. And with the Nasdaq pushing new highs, it's worth watching how far this momentum can run. Lucas: Absolutely. We'll keep tracking it. For now, that's our take on Datadog and what it says about the bull market in July 2026.