The Algorithm and the Orchard

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The market, as it often does, has fallen into a season of dormancy. The S&P North American Technology Software Index, a ledger of one hundred and eleven souls, has retreated, shedding twenty-four percent of its summer bloom since September. A chill wind whispers of anxieties – the fear that these new intelligences, these coded automatons, will diminish the need for the very hands that crafted them. A strange irony, is it not? To build a machine that might render one’s own labor superfluous.

Yet, I suspect the prevailing gloom is… premature. Morgan Stanley’s recent survey of Chief Information Officers suggests a different narrative. Software, they believe, will be the fastest-growing branch of the technological tree in the year to come. They see these new tools not as replacements, but as extensions – instruments that will amplify the capabilities of those who wield them. The disruption, it seems, will be absorbed, channeled, and ultimately, serve as a catalyst for further growth. The delivery mechanism, as they put it, for a flowering of generative possibilities.

Two companies, in particular, have captured my attention – Datadog and Atlassian. Not as mere commodities in a portfolio, but as nascent ecosystems, each striving to cultivate its own unique garden. Wall Street analysts, those keen observers of the shifting winds, foresee a potential for significant growth – a doubling, even a tripling, of their current valuation.

  • Adam Shepherd, of Arete Research, now values Datadog at $260 per share – a promise of a 102% return from its present price of $129.
  • Keith Weiss, at Morgan Stanley, sets his sights on $320 for Atlassian, a 170% ascent from its current $118.

Let us delve into the soil of these enterprises, to understand the roots of their potential.

Datadog: Observing the Current

Datadog, a cartographer of the digital realm, provides the tools to monitor the intricate workings of IT infrastructure. Two dozen products, each a sensor, a gauge, a lens, to observe the flow of data, the health of applications. Their Watchdog engine, a vigilant guardian, automates the detection of anomalies, the sounding of alerts, the tracing of causes. It is a system designed to anticipate, to prevent, to restore – a digital physician tending to the vital signs of the modern enterprise.

The advent of artificial intelligence, far from being a threat, is a boon to Datadog. Forrester Research has recognized them as a leader in AI for IT operations – a technology that employs machine learning to maintain the functionality of complex systems. Gartner, too, acknowledges their leadership in digital experience monitoring and observability, highlighting their ability to monitor the performance of these large language models – these nascent digital minds.

Keith Weiss, of Morgan Stanley, notes that Datadog’s ability to consolidate a broad range of monitoring tools onto a single platform – a necessity for many IT departments – has allowed them to gain a leading position in the observability market. It is a simplification, a streamlining, a reduction of chaos into order.

Their recent financial results confirm this trajectory. Revenue increased by 28% to $886 million, while their remaining performance obligation rose by 53% to $2.8 billion. Non-GAAP net income increased by 20% to $0.55 per diluted share. However, this growth is fueled by significant investment in research and development – a sowing of seeds for future harvests.

Wall Street anticipates an annual earnings growth of 19% through 2028. This makes the current valuation of 66 times earnings appear… ambitious. Yet, Datadog has consistently exceeded expectations, and the ongoing deployment of AI agents could sustain this momentum. Still, a 102% return in the next year feels… optimistic. A more reasonable price, perhaps, would be twenty percent lower. A patient investor might consider a small position today, but prudence dictates caution.

Atlassian: Weaving the Fabric of Collaboration

Atlassian crafts the tools that enable teams to plan, track, and collaborate on projects. Jira, their flagship product, is the industry standard for software development and operations – a digital loom upon which the fabric of innovation is woven. But its reach extends beyond the technical realm, encompassing marketing, human resources, and finance – a testament to its adaptability and versatility.

Gartner recognizes Atlassian as a leader in work management software for both DevOps teams and marketing teams – a rare distinction. Forrester Research, too, acknowledges their leadership in enterprise service management. This strength across multiple markets is a key advantage – allowing them to win and expand their reach across entire organizations.

They have infused their tools with a generative AI assistant called Rovo. For DevOps teams, Rovo assists in generating, reviewing, and cleaning code. For non-technical teams, it surfaces insights and automates workflows. Gartner recognizes Atlassian as an emerging leader in generative AI technologies – a harbinger of future capabilities.

Their recent financial results are encouraging. Revenue increased by 21% to $1.4 billion, while their remaining performance obligation jumped by 42% to $3.3 billion. Non-GAAP earnings increased by 35% to $1.04 per diluted share. CEO Mike Cannon-Brookes notes that the number of monthly active users engaging with AI capabilities has increased by more than 50% to 3.5 million – a sign of growing adoption and engagement.

Wall Street anticipates an annual earnings growth of 22% through the fiscal year ending in June 2027. This makes the current valuation of 30 times earnings appear… reasonable. With shares down 63% from their peak, due to concerns about AI, Atlassian represents an attractive opportunity. However, a 170% return would require exceptional financial results for several consecutive quarters – a sustained bloom, rather than a fleeting blossom.

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2026-02-03 11:13