Motley Fool’s “One Top AI Agent Stock”: Datadog Is a Great Company at a Demanding Price

The Hook

The pitch opens with a three act story. Act one was hardware, personified by Nvidia. Act two was software, personified by ChatGPT. And now, the ad says, we are entering act three: “AI Agents. Think of them as tireless digital employees who never sleep.” The framing is classic newsletter architecture, a clean arc with a clear hero. The reader is told they are “standing on the edge of what the insiders are calling AI’s Third Wave,” and that the way to play it is one specific stock the ad holds back behind the order form.

The offer itself is Motley Fool Stock Advisor, $99 for the first year, $199 on renewal, with a 30-day refund. That is a reasonable, honest price for a well-known service. The tease, “One Top AI Agent Stock,” is the kind of single-name reveal the Fool has run for years. The emotional engine is the fear of missing a wave before it crests. For the specifics, our “AI Agent Stocks: What Investors Need to Know” article is worth a read.

What caught my attention is the metaphor the ad uses to describe the company: “the meter ticking quietly behind the entire [AI agent] boom.” That is a genuinely good framing. Whether it is a good investment at today’s price is a separate question, and that is what this teardown is about.

The Big Claim

The core claim is that the AI opportunity has entered a third phase, and that the biggest beneficiaries of the first two phases, the chip makers and the model builders, are not the biggest beneficiaries of this one. The ad’s logic runs like this: agents do not just answer questions, they take actions. Every action spins up compute, logs, metrics, and traces. Someone has to watch all of it.

Here is the marquee claim, in the ad’s own words: “Every agent turned loose, every workload spun up, every line of AI code shipped to production has to be watched, secured, and kept running, and this company is the one watching.”

The supporting stats are specific. “Trusted by more than 750 AI companies, including all of the top 10 AI leaders.” And the growth line: “Grew revenue more than 35% year over year last quarter, to $1.12 billion.”

So the pitch has three moving parts: a narrative about AI’s next phase, a specific company positioned as the toll-taker on that phase, and a set of concrete numbers meant to make the story feel inevitable. All three parts are worth checking, and checking them is where this gets interesting.

The Mechanism

The mechanism here is the picks-and-shovels argument applied to AI, and it is more coherent than most. Let me explain the reasoning, because it actually hangs together.

Observability is the practice of collecting telemetry from software: metrics, logs, and traces. When a company runs one application on one server, there is a modest amount of data to watch. When it runs thousands of services across a cloud, the volume explodes. Datadog’s business is charging for the ingestion and analysis of that telemetry. It has grown from infrastructure monitoring into application performance monitoring, log management, and more recently security and cloud-cost tools. The revenue model is a subscription, and customers tend to buy more modules over time.

The AI agent story plugs directly into this. An AI agent is not a passive chatbot. It is software that acts: it calls APIs, reads data, writes data, and spawns sub-tasks. Every one of those actions generates telemetry. A fleet of agents running around the clock produces dramatically more of it than a human clicking a button. The ad’s line about “tireless digital employees who never sleep” is hype, but the underlying point is real: agents increase the volume and complexity of observable software. That is the macro backdrop, and it is a genuinely favorable one for the observability category.

There is a second, quieter driver the ad touches only in passing. AI applications fail in ways that are hard to debug. A model’s output can be nondeterministic, a prompt can drift, and a latency spike can come from the model provider rather than the customer’s own code. Debugging that requires tracing the entire pipeline, from the user’s prompt down through retrieval and model calls. Observability is arguably more necessary for AI workloads than for traditional ones, not less. So the direction of the thesis is sound.

The company’s own numbers support the quality argument. Dollar-based net retention above 120% means existing customers, on average, spend more each year than the year before, a sign of a sticky and expanding product. Roughly $5 billion of net cash on the balance sheet means the business funds itself. And the 35% revenue growth the ad quotes is real, not aspirational. This is not a speculative story company. It is a profitable, fast-growing software franchise. The question is not whether the mechanism is real. It is what price you are being asked to pay for it.

The Real Pick

The stock is Datadog (DDOG), the New York based observability and security platform. Current prices are as of the October 27, 2026 close, pulled from Polygon.

Does the Math Check Out

Now we put numbers next to the story, because that is where the pitch gets quiet.

The revenue number is real. Datadog did grow revenue more than 35% year over year to about $1.12 billion in its most recent quarter, and it is on a run rate that clears $4 billion annually. The 750-plus AI customers and the “top 10 AI leaders” claim are also consistent with how broadly Datadog is adopted across the modern software industry. None of that is in dispute.

The problem is on the other side of the trade: what you pay for that growth. At a $280.82 close and a market cap of roughly $100.8 billion, Datadog trades at about 20 times revenue. Its forward earnings multiple sits above 100 times, and even if you look out to expected 2028 earnings, the stock still trades around 85 times that number. Those are not typo-level multiples. They are what a market pays when it has already priced in a long runway of compounding growth and margin expansion.

Let me put that in a growth investor’s terms. A business growing revenue 35% a year with gross margins in the high 70s can absolutely justify a premium multiple. But 20 times sales is the kind of price you pay when you expect the growth rate to hold for years and the operating margin to keep climbing toward software-titan territory. If growth decelerates to, say, the mid-20s, the multiple the market is willing to pay tends to compress, and a stock at 20 times sales has a long way to fall even while the underlying business keeps doing fine. That is the thin margin for error the ad never mentions.

The tease price itself tells you something. The teaser value of $278.24 is less than 1% below the October 27 close of $280.82. In other words, this is not a name that was quietly ticking along unnoticed until the Fool “revealed” it. Datadog is one of the most widely followed software stocks in the market, and its AI-observability angle has been public conversation for years. There is no “get in before the crowd” gap here. The crowd is already in.

StockGumshoe’s framing is the right way to think about it: this is a litmus test. Either Datadog matures into the next generation of cloud titan and grows into its multiple, or the valuation is ahead of the fundamentals and the stock gives back ground even while the business executes. Both outcomes are plausible. What is not plausible is the idea that you are being let in on a secret.

The Verdict

Datadog is a genuinely excellent company and the AI-observability thesis is directionally right. If you want exposure to the AI agent buildout through a picks-and-shovels name with real revenue, real retention, and a fortress balance sheet, Datadog belongs on your watchlist. But at roughly 20 times sales, more than 100 times forward earnings, and around 85 times expected 2028 earnings, you are paying up for quality the market already knows about. This is a great company at a demanding price, not an undiscovered opportunity. The honest move is to wait for a pullback and buy on weakness, rather than chase the tease at today’s valuation. That is not a dismissal of the stock. It is a comment on the entry point. For the specifics, our “What Is AI Observability: What You Need to Know” article is worth a read.

What They Got Right

• The picks-and-shovels angle is real. AI agents genuinely multiply the volume of telemetry that has to be monitored, secured, and traced, and observability is the direct beneficiary.
• Datadog is a genuinely high-quality business. Dollar-based net retention above 120%, roughly $5 billion of net cash, and real 35% revenue growth are the kind of numbers that separate a durable franchise from a story stock.
• The specific stats check out. The “750 AI companies” and “top 10 AI leaders” claims are consistent with Datadog’s actual footprint across the software industry, and the $1.12 billion revenue figure is verifiable.
• The “third wave” narrative is a reasonable framing of how the AI buildout is unfolding, and naming the infrastructure layer rather than another chip or model name is smarter stock picking than most teases.
• The Fool is transparent about its own position. It holds Datadog in its corporate portfolio, and that disclosure, while easy to miss, is more than many newsletters offer.

What They Got Wrong

• The tease frames Datadog as a fresh “AI agent” discovery, but it is a roughly $100 billion mega-cap that has been one of the most widely owned software stocks in the market for years. There is no information edge being handed to you.
• The ad is silent on valuation. Twenty times revenue, more than 100 times forward earnings, and about 85 times expected 2028 earnings are the entire ballgame for a new buyer, and the pitch never mentions price once.
• The tease-to-close spread of less than 1% shows the market already knows the story. The stock is not running because of this reveal; it is just expensive and fully covered.
• “AI’s Third Wave” overstates a continuous evolution as a clean break. Agents are a natural extension of the software that came before, not a sudden, discrete event you either catch or miss.
• The framing implies observability is a single-winner category. Datadog is excellent, but it competes with Dynatrace, New Relic, Splunk under Cisco, Grafana Labs, and the native monitoring tools of the big cloud providers, and that competition gets left out of the “this company is the one watching” line.

Compliance Disclaimer

This is not financial advice. NewsletterVetter has no position in any stock mentioned.

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