DDOG vs. NOW: Which Cloud Software Stock Has an Edge Right Now?

Datadog DDOG is a cloud-based observability and security platform that helps organizations monitor applications, infrastructure, logs and AI workloads. ServiceNow NOW provides an enterprise AI platform that connects data, workflows, IT service management, security and automation across business functions.

Both companies sit at the heart of modern cloud operations, helping enterprises manage the growing complexity of technology and automate critical workflows. The comparison is sensible as AI adoption accelerates demand for observability, incident response and intelligent automation. As both companies maintain strong growth momentum, DDOG and NOW provide an interesting comparison for investors evaluating which cloud software stock offers the better opportunity. Let’s take a closer look.

The Case for DDOG Stock

Datadog presents an attractive cloud software opportunity as rising cloud and AI complexity increases demand for unified observability, security and workflow automation. Its SaaS platform integrates infrastructure monitoring, application performance, logs, user experience, cloud security and service management, helping organizations manage increasingly complex technology environments, improve collaboration across teams, accelerate problem resolution and expand automation. This broad platform approach gives Datadog multiple avenues to increase adoption within existing accounts.

Second-quarter 2026 results reinforced this thesis as revenues jumped 36% year over year to $1.12 billion, free cash flow reached $279 million and $100K-plus ARR customers rose 23% to about 4,720. Trailing net revenue retention remained in the low 120s, while 58% of customers used at least four products, supporting a strong land-and-expand model.

Datadog serves about 33,400 organizations, ranging from startups to large enterprises; more than 750 AI customers use its platform, including all 10 of the top AI leaders. This broad customer footprint gives Datadog exposure to both established enterprises and fast-growing AI workloads, while rising AI adoption could create additional demand for monitoring, security and management tools.

Growth opportunities are expanding through AI-powered Bits Code, Bits Chat, Bits Agent Builder, AI Guard and autonomous incident remediation. The Adaptive ML acquisition adds reinforcement-learning expertise that could strengthen specialized agents and world-model research. Since July, Datadog has also advanced Cloud Cost workflows and Work Management, while its August AI-native SAST release broadens protection for LLM applications.

Nevertheless, investors should consider the significant risks alongside these opportunities. Competition remains intense, while rapid technological change, cybersecurity threats, service interruptions and weaker IT spending could pressure growth. Datadog has also indicated that usage by its largest customer will decrease starting in the third quarter of 2026; this highlights the sensitivity of its usage-based model to changes in customer workloads.

The Case for NOW Stock

ServiceNow remains a leading cloud-based enterprise software platform helping large organizations manage technology complexity, automate workflows and connect data, AI and security. Its investment case rests on whether it can turn this broad enterprise footprint into a larger opportunity in AI, cybersecurity and workflow automation.

However, investors should weigh several concerns first. In the second quarter of 2026, GAAP operating margin fell to 4% from 11% a year earlier, while GAAP gross margin declined to 70.5% from 77.5%, both contracted 700 basis points year over year, partly reflecting acquisition-related amortization and costs. Stock-based compensation alone represented 16.5% of revenues.

The balance sheet also carries more financial obligations following the Armis acquisition. ServiceNow had $2.1 billion of commercial paper outstanding at the end of June, while it issued $4 billion of senior unsecured notes in May to refinance acquisition-related borrowing.

The company is facing intense competition, including pricing pressure from vendors like Salesforce, while many enterprises are still struggling to prove AI returns after investing in small-scale AI trials. A U.S. federal channel partner and systems integrator accounted for 13% of second quarter 2026 revenues, highlighting some customer-concentration risk.

However, ServiceNow's underlying demand remains strong. In the second quarter of 2026, subscription revenues rose 24.5% year over year to $3.88 billion, while cRPO increased 21% to $13.2 billion. The company also recorded 123 transactions exceeding $1 million in net new ACV, up nearly 40% year over year, suggesting continued strength in large enterprise deals.

ServiceNow AI surpassed $1 billion in ACV, agentic AI deployments increased ninefold in nine months, and 658 customers had more than $5 million in ACV. This indicates that AI is beginning to translate from an emerging product opportunity into a meaningful commercial growth driver. Its above 8,800 customers include roughly 90% of the Fortune 500, giving ServiceNow a substantial installed base from which to cross-sell AI, security, CRM and other workflows.

Share Price Performance for DDOG & NOW

Year to date (YTD), DDOG shares have surged 66%, immensely outperforming NOW’s 16.4% decline. Datadog's rally is supported by its faster revenue growth, expanding AI opportunity, deeper enterprise penetration and broader platform adoption.

YTD Stock Performance

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Valuation Comparison

Both DDOG and NOW stocks are currently overvalued, as suggested by the Value Score F and D, respectively.

While DDOG trades at a higher forward 12-month P/S multiple of 15.93X versus 7.3X for NOW, its stretched valuation is supported by faster growth, expanding AI opportunities and deeper platform adoption. Therefore, DDOG’s valuation leaves less room for execution disappointments, but its stronger growth profile could help justify the premium if momentum is sustained.

Forward 12-Month (P/S) Valuation

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DDOG vs. NOW: Which Has the Stronger Growth Estimates?

The Zacks Consensus Estimate for DDOG’s 2026 earnings is currently pegged at $2.52 per share, implying approximately 23% year-over-year growth. More importantly, earnings estimates have trended higher over the past 30 and 60 days, suggesting improving analyst sentiment and potentially stronger expectations.

Image Source: Zacks Investment Research

By comparison, the Zacks Consensus Estimate for NOW’s 2026 earnings stands at $4.07 per share, implying 15.6% year-over-year growth. However, estimates have trended lower over the past 30 and 60 days, suggesting relatively softer expectations for ServiceNow’s earnings growth.

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Earnings-surprise trends further strengthen DDOG’s case. Both companies have beaten the Zacks Consensus Estimate in each of the past four quarters. However, DDOG’s average earnings surprise of 15.4% significantly exceeds NOW’s 6.8%, indicating that Datadog has demonstrated greater consistency in outperforming analyst expectations.

Conclusion

DDOG emerges as the stronger pick over NOW, backed by faster revenue and earnings growth, stronger earnings surprises, rising estimates and expanding AI opportunities. Although its premium valuation raises risk, Datadog’s accelerating platform adoption, resilient customer expansion, and exposure to growing AI workloads provide a more favorable growth profile, giving DDOG an edge.

Currently, DDOG carries a Zacks Rank #3 (Hold), while NOW has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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