Datadog (DDOG) remains "well positioned" to benefit from rising "observability" spending driven by cloud migration, artificial intelligence adoption and continued product innovation, RBC Capital Markets said in a report emailed Friday.

Following a meeting with the company's management, the firm said Datadog continues to gain market share as customers "consolidate" around its platform and invest in AI-driven modernization, with product innovation, expanding sales capacity and growing customer adoption supporting "durable" growth.

AI-driven infrastructure modernization is Datadog's largest long-term opportunity, positioning the company as a preferred platform for managing production environments, the firm said.

While emerging opportunities such as AI "training workloads," token cost management and "Bits AI SRE" could provide additional growth over time, the firm said the core investment thesis remains centered on Datadog's leadership in observability and "production environments."

RBC maintained an outperform rating on Datadog and raised its price target to $250 from $219.

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