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Datadog (DDOG) shares rallied more than 15% on Thursday following news the cloud observability company will become a constituent of the S&P 500 Index ($SPX) on July 9.
DDOG will replace Juniper Networks following its $13.4 billion acquisition by Hewlett Packard Enterprise (HPE) last week.
Including today’s surge, Datadog stock is up some 90% versus its April low.
Why Does S&P 500 Inclusion Matter for Datadog Stock?
Datadog’s inclusion in the benchmark index is a meaningful positive for its investors for several reasons. For starters, it will trigger immediate buying pressure from passive index funds and ETFs.
Funds that track the S&P 500 are mandated to hold its constituents, which will likely create a meaningful surge in demand for DDOG shares in the second half of 2025.
Moreover, index inclusion boosts Datadog’s visibility and prestige among institutional investors. It signifies the company’s strong financial health and market leadership, attracting broader investor interest and increased analyst coverage.
While the initial price jump may prove short-lived, better recognition and institutional ownership will likely contribute to greater liquidity and long-term stability for the Datadog stock.
Is It Already Too Late to Buy DDOG Shares?
Citing its upcoming inclusion in the S&P 500 index, TD Cowen analysts maintained their “Buy” rating on Datadog stock today but left their price target unchanged at $150 – marginally below the current price.
What it suggests is the investment firm’s experts believe much of the good news is baked into DDOG shares already. Therefore, any signs of cloud spending fatigue or margin compression could trigger a valuation reset.
Investors should also note that the cloud stock is currently going for an eye-watering forward price-to-earnings multiple of nearly 600x, which makes it overvalued to own at current levels.
How Wall Street Recommends Playing Datadog Here
The valuation disconnect in DDOG stock is not lost on other Wall Street firms either.
While the consensus rating on the cloud observability company remains a “Strong Buy,” the mean target of about $140 indicates potential downside of as much as 10% from here.
