Key Points

Nvidia holds a key position in the rapid rise of AI, yet investors hunt for alternatives.
Datadog shares faltered last year due to worries that AI might sideline its tools.
Datadog has proven vital for overseeing AI systems, securing its essential role.

In the surge of artificial intelligence, Nvidia (NASDAQ: NVDA) stands as the benchmark stock. It provides the chips powering recent AI breakthroughs and has reaped major rewards from the trend. Even with rising rivals, doubts on AI uptake, and broader economic plus geopolitical risks, Nvidia shares are up 21% in 2026 so far (through Wednesday's close), topping the S&P 500's 9% and the Nasdaq Composite's 14% gains.

Still, one AI contender is surpassing Nvidia handily. The observability and security platform powered by AI, Datadog (NASDAQ: DDOG), has rocketed 51% this year, more than twice Nvidia's advance.

What's fueling this momentum, and could it persist?

The Tide Turns

2025 tested Datadog holders. A major drag was anxiety that AI progress would make conventional software-as-a-service (SaaS) firms redundant. Coupled with slowing expansion over prior years, it fueled pessimism. But 2026 brought a shift.

Datadog's first-quarter revenue jumped 32% to $1 billion, its inaugural billion-dollar period and quickest growth in three years. Adjusted earnings per share climbed 30% to $0.60.

Analysts expected $932 million in revenue and $0.51 adjusted EPS, so Datadog exceeded forecasts handily.

High-value clients drove this, with those generating $100,000-plus in annual recurring revenue reaching 4,550, a 21% increase.

Cash flows impressed too: operating cash flow hit $335 million and free cash flow $289 million, up 23% and 18%.

A standout was GPU monitoring rollout. As firms rush into AI, ROI questions linger. Datadog aids by tracking GPU health, costs, and efficiency in scaling AI efforts. It speeds issue resolution and cuts expenses on hefty AI outlays.

No wonder Datadog secured big AI-focused contracts, including multi-year deals worth six, seven, or eight figures. Standouts involved "two of the world's top tech giants ... developing the most sophisticated AI models." Their tools boosted "innovation speed on massive AI training," per executives.

Post-earnings, Datadog lifted its yearly outlook to $4.32 billion revenue and $2.40 adjusted EPS at midpoint, up from prior $4.08 billion and $2.12.

Not a Direct Match

Admittedly, it's no even matchup. Datadog hit $1 billion quarterly for the first time; Nvidia does that routinely. Nvidia eyes 77% revenue growth versus Datadog's 30%. Yet it highlights a shift: As AI spreads wider, capital flows to emerging leaders, rewarding promise richly.

Datadog has unlocked AI participation with superior ROI for clients, quashing disruption fears.

Analysts agree: 92% rate it buy or strong buy in May, zero sells. Post-quarter, targets rose; shares near the $220 average, implying 7% upside now.

Worth Buying?

Does Datadog merit a purchase? After stellar results, shares leaped 95% in the last month. That lifts valuation to 72 times forward earnings - a steep ask.

Value seekers may pass, growth fans might bite. A prudent step: Start small in a diversified mix, adding on dips.

Datadog's quickening pace bears watching for sustained traction.

Views expressed reflect the author and not necessarily Nasdaq, Inc.