We recently compiled a list of the 11 Best Enterprise Software Stocks to Invest In. In this article, we are going to take a look at where Datadog Inc. (NASDAQ:DDOG) stands against the other enterprise software stocks.
Enterprise software comprises applications designed for large organizations, which enable them to manage functions like data analysis, sales, marketing, and customer service. These solutions prioritize scalability, high user capacity, and seamless integration with existing systems. Grand View Research reported that the global enterprise software market is valued at $263.79 billion as of 2024 and is expected to expand at a 12.1% compound annual growth rate from 2025 to 2030. North America accounted for 41% market share of the global enterprise software industry in 2024.
Key trends such as Industry 4.0, digitization, and the rise of connected devices add to the demand for automated and integrated solutions. The shift towards hybrid work models has increased enterprise software adoption in sectors like healthcare and education. In healthcare, enterprise software enhances hospital management and electronic health records. Data safety and privacy are vital market drivers as organizations prioritize protecting sensitive information and comply with GDPR and HIPAA regulations.
Cloud-based enterprise software is expected to dominate the market share by over 55% in 2024 due to its accessibility and affordability, while on-premise solutions will gain traction as organizations seek enhanced customization and data security. Large enterprises accounted for over 62% of the market share, driven by the need to manage complex workflows efficiently. The IT & Telecom sector led with over 20% market share in 2024.
On December 11, Liz Young Thomas, SoFi’s head of investment strategy, and Angela Mwanza, Rockefeller Global Family Office private advisor, joined CNBC’s ‘Closing Bell’ to discuss their market outlooks and address the recent performance of tech stocks. Mwanza expressed a strong bullish outlook for the software sector as they approach the new year. She noted that while mega-cap tech stocks are highly valued, this does not indicate that they are overvalued. She suggested rebalancing portfolios to reduce concentration in these large-cap names while recognizing their growth potential. She highlighted that over the last 6 months, the MAG7 stocks have lagged behind the broader S&P 500, indicating a market broadening that could favor software investments.
Thomas supported this bullish sentiment by emphasizing the resilience of software stocks amid recent volatility in momentum stocks, particularly high-growth names. Despite some mega-cap stocks seeing dramatic year-to-date increases, some up to 900%, others have struggled. Looking into 2025, Thomas predicted uneven performance within the tech landscape and advised investors to focus on software companies. She expressed a stronger bullish sentiment towards this segment, suggesting that software stocks are well-positioned for continued growth as they head into the new year.
Methodology
We first sifted through ETFs, online rankings, and internet lists to compile a list of the top enterprise software stocks. We then selected the 11 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a laptop with a software engineer coding on the monitor.
Datadog Inc. (NASDAQ:DDOG)
Number of Hedge Fund Holders: 71
Datadog Inc. (NASDAQ:DDOG) provides observability and security platforms for cloud applications. Its SaaS platform integrates and automates functionalities like infrastructure monitoring, application performance monitoring, log management, and real-user monitoring. This unified approach provides businesses with real-time insights into their entire technology stack, helping them identify and address potential issues proactively.
AI Native Customers, who heavily leverage AI/ML, now represent over 6% of the company’s ARR, an increase from 2.5% a year ago. These customers contributed ~4 percentage points to Datadog Inc.’s (NASDAQ:DDOG) year-over-year revenue growth in Q3 2024, which was 26%. 3,000+ customers are currently utilizing Datadog AI integrations, and 100s are actively using LLM Observability, which provides visibility into the performance and behavior of LLMs.
This underscores the increasing importance of AI within the Datadog Inc. (NASDAQ:DDOG) ecosystem and the company’s commitment to providing comprehensive observability solutions for AI-powered applications.
The Brown Capital Management Small Company Fund stated the following regarding Datadog, Inc. (NASDAQ:DDOG) in its Q3 2024 investor letter:
“Other examples of negative sentiment include portfolio companies that reported earnings that met or exceeded expectations, but only saw their share prices go up slightly, stay flat or even decline. For example, Datadog, Inc. (NASDAQ:DDOG) is a leading SaaS-based, information technology (IT)-monitoring and analytics software platform for developers, IT operations and business users. The platform automates the monitoring of infrastructure, applications databases, networks, logs and security. Datadog’s platform is differentiated by providing a unified view of these systems via a visual interface configured to the needs of each user (i.e., a single pane of glass). Datadog delivered solid operating results in the second quarter of 2024, reporting revenue growth of 27% and raising 2024 full year revenue, operating income and earnings guidance. Despite these solid fundamental results, Datadog’s share price was down 11.8% in the third quarter. We speculate that these market reactions are evidence of the negative environment for high-growth companies. For more, please see the Detractors section below.
Datadog, mentioned above, automates the monitoring of infrastructure, applications databases, networks, logs and security. The company delivered solid operating results in the second quarter of 2024, reporting revenue growth of 27% and raising guidance for 2024 full-year revenue, operating income and earnings. Datadog noted improving consumption and demand trends among its enterprise customers and stabilizing trends among its small and mid-sized customers. On its earnings call, Datadog management disputed that it has interest in large acquisitions, notwithstanding news articles on July 17 that Gitlab was seeking a buyer and Datadog is among the potential suitors. Despite solid fundamental results, Datadog’s share price underperformed in the third quarter of 2024. This may be due to its premium valuation and investor worries about Datadog’s ability to sustain its current strong revenue growth in a softer economic environment. We remain confident in Datadog’s ability to deliver durable growth over the long term. We believe Datadog has a massive and underpenetrated total addressable market that is growing about 10% annually. We also believe Datadog has a strong competitive positioning in infrastructure monitoring and is gaining market share.”
Overall DDOG ranks 10th on our list of the best enterprise software stocks to invest in. While we acknowledge the potential of DDOG as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DDOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.