Key Points

• Datadog is set to join the S&P 500 next week.

• The cloud monitoring and security specialist is already at the top of its field.

• Artificial intelligence (AI) represents another vast opportunity for Datadog.

Shares of Datadog (NASDAQ: DDOG) charged sharply higher Thursday. As of 10:53 a.m. ET, the stock was up 13.1%.

The catalyst that sent the cloud monitoring, analytics, and security company soaring was the revelation that the stock will be joining the most widely followed stock market index in the U.S.

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Image source: Getty Images.

An important nod

In a press release that dropped after the market closed on Wednesday, S&P Dow Jones Indices announced that Datadog would be added to the S&P 500 (SNPINDEX: ^GSPC) before the start of trading on July 9. The stock will be replacing Juniper Networks on the storied index, as the company was recently acquired by Hewlett Packard Enterprise.

This represents an important validation for Datadog, as many in the investing community had expected either AppLovin or Robinhood Markets to make the cut.

The S&P 500 is the most widely followed benchmark in the U.S. and is regarded as the most reliable benchmark of stock market performance in the country. To be admitted to the index, companies must meet important market cap, liquidity, and profitability criteria. The fact that Datadog was chosen over these other investor-favorite stocks suggests the company has earned the respect of Wall Street.

It's well known that stocks that join an index like the S&P often experience the "index effect," a short-term price bump, as index funds and exchange-traded funds that track the index buy shares of the stock to match its composition. However, history shows that the impact is short-lived, and more important considerations like revenue growth, profits, and cash generation take center stage.

What's next for Datadog?

Datadog is at the top of its game, as evidenced by its selection as a Leader in the "2024 Magic Quadrant" by Gartner for observability platforms. The company pivoted quickly to include tools to monitor large language models (LLMs) and other artificial intelligence (AI) systems. This move was prescient, as these tools currently represent roughly 9% of annual recurring revenue.

Given the company's growth trajectory and AI tailwinds, investors might want to consider taking Datadog for a walk.

Should you invest $1,000 in Datadog right now?

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Danny Vena has positions in Datadog. The Motley Fool has positions in and recommends AppLovin and Datadog. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.

Wall Street loves a good David versus Goliath story. But what happens when two Davids are battling entirely different giants?

That's the compelling dynamic between Rocket Lab USA (NASDAQ: RKLB) and Datadog (NASDAQ: DDOG) -- two disruptive innovators, each aiming for a trillion-dollar opportunity from opposite ends of the tech frontier. Datadog is entrenched in the red-hot world of artificial intelligence (AI) infrastructure and observability. Rocket Lab is scaling up in the fast-emerging space economy, building the tools -- and rockets -- for a multiplanet future.

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AI may be grabbing headlines, but investors might be missing a more explosive opportunity just over the horizon. Which of these high-growth stocks is the better buy?

Tale of two trajectories

Rocket Lab reported $123 million in first-quarter 2025 revenue, reflecting 32% year-over-year growth. The company has rapidly evolved from a launch provider into a vertically integrated space systems manufacturer. Its product portfolio now includes satellite buses, solar power systems, separation stages, and flight software.

In 2023, Rocket Lab components were present on approximately 38% of all orbital missions, a testament to its growing influence in the commercial space supply chain. The upcoming Neutron rocket, designed for medium-lift launches and human-rated capability, could further position Rocket Lab as a key player in the next phase of orbital access.

Datadog posted $762 million in first-quarter revenue, representing 25% year-over-year growth and beating analyst expectations. The observability platform now serves 3,770 customers generating more than $100,000 in annual recurring revenue.

More importantly, the company's strategic push into AI observability is gaining traction. AI-native companies now account for 8.5% of total annual recurring revenue, up from just 3.5% a year ago. This surge highlights Datadog's growing relevance as AI workloads become central to enterprise infrastructure.

Racing for different finish lines

This is where conventional wisdom starts to break down. Datadog operates in the observability market, which is projected to grow at a steady 12.2% annually through 2030. That's impressive, but Rocket Lab is targeting a much more explosive opportunity -- the deployment of over 10,000 satellites requiring launch services by decade's end. This will support a total addressable market expected to exceed $10 billion.

SpaceX currently holds a dominant position, accounting for approximately 87% of global launch mass. However, Rocket Lab's upcoming Neutron rocket could shift the dynamics.

With a target launch price between $50 million and $55 million, Neutron undercuts SpaceX's $67 million Falcon 9 and is purpose-built for medium-lift missions, a segment where meaningful competition is limited. If Rocket Lab delivers on schedule and performance, it could inject long-awaited price pressure into the market and capture a significant share of future demand.

Customer proof points tell the story

Rocket Lab's recent contract wins underscore growing customer confidence and repeat business. The company completed its tenth mission for BlackSky, deploying next-generation imaging satellites. It's also executing an eight-launch agreement with iQPS, supporting the buildout of a radar satellite constellation.

On the defense front, Rocket Lab is conducting hypersonic test missions for the U.S. Department of Defense under the HASTE program. These contracts reflect sustained demand and a growing role in national and commercial space infrastructure.

Datadog also demonstrates strong customer traction. Companies like AppFolio, Asana, and Twilio rely on its observability platform. Its recent acquisition of AI-focused start-up Metaplane positions the company to meet rising demand for data quality monitoring as enterprises expand their use of AI. With 83% of customers using two or more Datadog products, the company continues to execute its land-and-expand strategy with precision.

The valuation paradox

Datadog faces intensifying competition from Amazon's AWS, Microsoft's Azure, and Alphabet's Google Cloud, each of which bundles observability tools directly into its platform. These hyperscalers can undercut Datadog on pricing while investing heavily in research and development, backed by massive cash flow.

Rocket Lab's higher valuation reflects its scarcity value. There are only two viable Western commercial launch providers, and only Rocket Lab is publicly traded. As the Department of Defense prioritizes launch diversity and commercial satellite constellations continue to expand, Rocket Lab's position as the sole investable alternative to SpaceX becomes more strategically important.

The surprising verdict

While both stocks deserve spots on growth investors' watch lists, Rocket Lab emerges as the superior growth investment. The company's 32% revenue growth outpaces Datadog's 25%, and its Neutron catalyst could transform it from a small-sat specialist into a genuine SpaceX competitor. Most importantly, Rocket Lab operates in a market with insurmountable barriers to entry.

Datadog remains a solid growth story, but its path involves navigating an increasingly crowded field where every major cloud provider wants market share. In the battle between monitoring software and launching rockets, physics wins. Rocket Lab's combination of proven execution, massive market opportunity, and the upcoming Neutron launch make it the more compelling growth story -- even if Wall Street hasn't fully realized it yet.

Should you invest $1,000 in Rocket Lab right now?

Before you buy stock in Rocket Lab, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Rocket Lab wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $658,297!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,386!*

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*Stock Advisor returns as of June 9, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. George Budwell has positions in Microsoft and Rocket Lab. The Motley Fool has positions in and recommends Alphabet, Amazon, AppFolio, Datadog, Microsoft, Rocket Lab, and Twilio. The Motley Fool recommends Asana and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The S&P 500 (SNPINDEX: ^GSPC) has almost fully recovered from its recent 19% drop, which was triggered by President Donald Trump's "Liberation Day" tariffs in April. But not every stock is following along -- in fact, many enterprise software stocks still haven't reclaimed their record highs from 2021.

Datadog (NASDAQ: DDOG) and Workiva (NYSE: WK) are two of those stocks. They were incredibly overvalued when they peaked a few years ago, and they are still down by 36% and 57%, respectively, from those lofty levels. But they're starting to look quite attractive.

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The majority of the analysts tracked by The Wall Street Journal who cover Datadog stock and Workiva stock have assigned them the highest possible buy rating. Here's why their optimism might be justified.

Image source: Getty Images.

The case for Datadog

Datadog developed an observability platform that monitors cloud infrastructure around the clock, alerting businesses to technical issues and outages which they might not have discovered until customers were affected or sales were lost (at which point it's too late). Over 30,500 businesses are using Datadog, and they operate in many different industries, including gaming, manufacturing, financial services, retail, and more.

Last year, Datadog expanded into artificial intelligence (AI) observability with a new tool that helps developers troubleshoot technical issues, track costs, and assess the outputs of their large language models (LLMs). During the recent first quarter of 2025 (ended March 31), the company said that the number of customers using this new tool more than doubled compared to just six months earlier, which suggests it's gaining serious traction.

Datadog also offers other AI products, like a monitoring solution for businesses using ready-made LLMs from OpenAI, and an AI-powered virtual assistant for its flagship observability platform. Overall, the company said that 4,000 customers were using at least one of its AI products in Q1, which also doubled year over year.

On the back of a strong first-quarter result, Datadog raised the high end of its full-year revenue forecast for 2025 to $3.235 billion, up $40 million from management's original guidance. It would represent growth of 21% from the company's 2024 result, but it would still be a drop in the bucket compared to the $53 billion addressable opportunity in the observability space alone.

Datadog was trading at a price-to-sales (P/S) ratio of around 70 when it peaked in 2021. But the 36% decline in the stock since then, in combination with the company's revenue growth, has pushed its P/S ratio down to 15.5. It's still elevated compared to many other enterprise software stocks, but it's much closer to the cheapest level since Datadog went public than it is to its lofty 2021 peak.

DDOG PS Ratio data by YCharts.

The Wall Street Journal tracks 46 analysts who cover Datadog stock, and 31 have assigned it the highest possible buy rating. Seven others are in the overweight (bullish) camp, and the remaining eight recommend holding. No analysts recommend selling. Their average price target of $140.72 implies a potential upside of 15% over the next 12 to 18 months, but investors who hold the stock for the long term could do far better as Datadog's AI products gather momentum.

The case for Workiva

Modern businesses often use dozens, or even hundreds, of digital applications to run their day-to-day operations. This is a nightmare for managers who are tasked with tracking workflows across all that software, but Workiva built an elegant solution to ease the burden.

Workiva's platform integrates with most storage applications, systems of record, and productivity software, allowing managers to pull data from all of them onto one dashboard. This saves them from having to open hundreds of individual applications, and it also reduces human error, which is common when copying mountains of data manually. Once data is loaded into Workiva, managers can select from several different templates so they can rapidly compile regulatory filings or reports for senior executives.

Workiva is also becoming a key player in the ESG (environmental, social, and governance) reporting space, offering a product that allows businesses to track their effect on all key stakeholders, not just those with a financial interest. With Workiva's ESG platform, organizations can create frameworks, track data, and compile reports on everything from their carbon emissions to the diversity of their workplace.

Workiva had 6,385 total customers at the end of Q1 2025, which was a 5% increase from the year-ago period, but its highest-spending cohorts are growing significantly faster. For example, the number of customers with annual contract values of at least $100,000 grew by 23%, and those with annual contract values of at least $500,000 soared by 32%. In other words, larger organizations with more complex operations seem to be flocking to Workiva.

The company expects to generate up to $868 million in total revenue in 2025, which would be a 17.5% increase compared to 2024. That would be a modest acceleration from the 17.3% growth it delivered last year.

As is the case with Datadog, Workiva's P/S ratio is currently down significantly from its 2021 peak. It's at 4.8 as of this writing, which is near the cheapest level since the stock went public.

WK PS Ratio data by YCharts.

The Wall Street Journal tracks 13 analysts who cover Workiva stock, and 11 of them have given it a buy rating. The remaining two are in the overweight camp, with none recommending to hold, let alone sell. Simply put, the analysts have reached a very bullish consensus.

Their average price target of $97.64 implies an eye-popping potential upside of 44% over the next 12 to 18 months. But the stock could do even better over the long term, since Workiva has barely scratched the surface of its $35 billion addressable market.

Should you invest $1,000 in Datadog right now?

Before you buy stock in Datadog, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Datadog wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $658,297!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,386!*

Now, it’s worth noting Stock Advisor’s total average return is 992% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 9, 2025

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Datadog and Workiva. The Motley Fool has a disclosure policy.