The S&P 500‘s reached multiple new record highs in 2026. And investors who’ve been buying US shares along the way have already secured some impressive gains. How much? Well, when including dividends, the index is up 11.3% since the start of the year, turning a £5,700 investment into £6,344.10.
That’s a pretty exceptional five-month gain for index investors. However, it’s not even close to what some intelligent stock pickers have earned since January kicked off.
Take Datadog (NASDAQ:DDOG) as a prime example. Its shares have skyrocketed 107.4% in the same space of time. Just to put that into perspective, the same £5,700 investment at the start of the year is now worth £11,821.80!
So what’s behind this sudden surge? And is it too late to consider buying shares?
Why are Datadog shares on fire?
Let’s start with a quick introduction. Datadog’s a cloud observability platform that helps businesses monitor software, infrastructure, logs, security, and application performance in real time.
To put it even more simply, it gives companies the ability to visualise data to spot problems quickly, keep systems running, and manage increasingly complex digital operations. And with more companies investing in complex AI models, demand for its technology has surged.
Looking at Datadog’s latest quarterly results, revenue’s up by 32% year on year to $1,006m, while the number of customers spending more than $100,000 each year has jumped 21%, from 3,770 to 4,550.
At the same time, free cash flow also stayed strong, and management lifted full-year guidance, suggesting that it expects even more momentum on the horizon driven by both new and existing customers spending more.
Given that the AI buildout and adoption look set to only accelerate this year, 50 out of 53 institutional analysts following the business have rated it a Buy or Outperform.
Clearly, the experts think there’s more room for growth here. But could they be wrong?
My concerns as a shareholder
Being a steady buyer of Datadog shares since as early as 2020, my original thesis of the company being key to cloud modernisation and AI infrastructure is seemingly playing out quite nicely.
The company has proven it’s built an ecosystem of sticky tools that solves a lot of headaches for its customers. And yet I’m reluctant to buy more shares right now.
Why? Because the valuation’s starting to look concerningly frothy. With a price-to-earnings ratio of 711.5, investor expectations have gone wild. Even on a forward basis, the earnings multiple currently stands at 114.9. For reference, the stock market average is usually closer to 15.
What does this mean? If Datadog continues to execute superbly and customers continue to spend more, the shares could easily climb higher. But if there’s the slightest hiccup due to a softening of IT budgets or intensifying competition, meeting today’s lofty expectations could prove challenging. And at such a premium valuation, even the slightest miss could translate into sharp downward volatility.
Overall, Datadog serves as an excellent example of the sort of returns successful stock-picking can deliver. But right now, I think there are other more promising growth opportunities in the S&P 500 to explore today.
Should you invest £5,000 in Datadog right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Datadog made the list?
Zaven Boyrazian owns shares in Datadog.
