Datadog, Dynatrace in focus as Baird said it would be ‘buyers’ ahead of earnings

Datadog (NASDAQ:DDOG) and Dynatrace (NYSE:DT) were in focus on Monday as Baird said it would be “buyers” of the cloud software companies ahead of their respective earnings reports, scheduled for later this week.

Shares fell 1.9% and 0.5% respectively in midday trading.

“We expect solid quarterly results for cloud observability leaders DDOG/DT, supported by continued strong hyperscaler trends and our Data/AI private company conversations,” analyst William Power wrote in an investor note. “The shift to the cloud and digital modernization remain key drivers; GenAI remains early, but monitoring those workloads presents a longer-term tailwind.”

Both companies seem “well positioned” to continue to grab share from Cisco and others in the enterprise software space, particularly in application security and AI accelerating long-term opportunities, Power added.

Additionally, the results of the hyperscalers should bode well for both Datadog and Dynatrace, as both Amazon (AMZN) Web Services and Google (GOOG) (GOOGL) Cloud saw “accelerating growth,” Power said. Historically, AWS has been “a good directional indicator for DDOG with a close correlation in growth rates for several years,” Power added.

Regarding Datadog, Power said he expects “solid upside” to second-quarter estimates and a “modest” full-year boost to guidance.

“While it doesn’t appear that the historical 2x revenue growth multiplier vs. AWS is on track to hold in 2024, we believe continuing acceleration at AWS should be directionally positive for DDOG,” Power said. That’s tempered very slightly by the digital native weakness in June cited by Confluent, but overall, we expect strong trends.”

A consensus of analysts expect Datadog to earn $0.36 per share on $625.1M in revenue for its fiscal second-quarter.