Key Points
Datadog offers a robust, AI-powered observability platform with expanding net income and strong revenue growth.
Fastly provides high-performance edge computing solutions for major media brands with massive internet traffic volumes.
Which of these software infrastructure providers is the better choice for your portfolio through 2027?
As cloud environments grow more complex, choosing between Datadog Inc. (NASDAQ:DDOG) and Fastly Inc. (NASDAQ:FSLY) requires balancing high-growth software monitoring against edge computing specialized for high-speed content delivery.
Datadog specializes in cloud observability, helping developers monitor application performance and security. Fastly operates an edge cloud platform designed to speed up digital experiences by moving processing closer to the user. Both companies play critical roles in modern infrastructure, yet they appeal to different types of investors.
The case for Datadog
In its latest annual report, filed for the fiscal year ended Dec. 31, 2025, Datadog reported serving roughly 32,700 customers globally. It helps organizations monitor infrastructure and application performance through a Software-as-a-Service model. In late 2025, one large customer contributed seven percentage points of revenue growth, highlighting how significant single accounts are for many tech stocks today.
In FY 2025, revenue reached around $3.4 billion, reflecting a growth rate of approximately 27.7% over the previous year. The company reported net income of about $107.7 million, representing a net margin of roughly 3.1%. This performance follows a steady upward trend from $2.1 billion in revenue and $48.6 million in net income reported in FY 2023.
As of its December 2025 balance sheet, the debt-to-equity ratio is roughly 0.4x, which compares total debt to shareholder equity to assess leverage. The current ratio, which measures the ability to cover short-term debts with short-term assets, is close to 3.4x. Free cash flow reached $1.0 billion, though stock-based compensation (SBC, for short) accounted for roughly 71.5% of operating cash flow, inflating reported cash generation because SBC is a non-cash expense added back in the cash flow statement.
The case for Fastly
In its latest annual report, filed for the fiscal year ended Dec. 31, 2025, Fastly noted that its ten largest customers generated 32% of its revenue. One specific company generated 10% of revenue in 2025, and customer concentration like this adds a layer of risk to the business. The platform serves hundreds of billions of requests daily for top brands, particularly within the media and entertainment sectors.
In FY 2025, revenue reached about $624.0 million, representing growth of approximately 14.8% compared to the prior year. The company reported a net loss of around $121.7 million, indicating a negative net margin of roughly 19.5%. While this loss is narrower than the $158.1 million loss recorded in FY 2024, it shows the business is still working toward reaching a break-even point.
As of the December 2025 balance sheet, the debt-to-equity ratio is approximately 0.5x. The current ratio is nearly 2.6x, providing a measure of a company's ability to cover its short-term liabilities with current assets. Free cash flow for the period was roughly $65.8 million, but stock-based compensation represented roughly 124.2% of operating cash flow, meaning reported cash generation is heavily inflated by this non-cash add-back.
Risk profile comparison
Datadog faces risks, including volatility in IT spending driven by global economic instability and geopolitical conflicts in the Middle East and Europe. The company deals with intense competition from major cloud providers including Amazon.com Inc. (NASDAQ:AMZN) and Microsoft Corp. (NASDAQ:MSFT). Furthermore, a security breach in April 2025 highlighted potential vulnerabilities, and the company must also manage the complex integration of its $4 billion Upwind Security acquisition.
Fastly is highly dependent on a limited number of major customers, making it vulnerable to usage reductions or account losses. Its business faces operational risks from platform disruptions and network outages that can impact user experience. Fastly also contends with intense competition from Alphabet Inc (NASDAQ:GOOG), Cloudflare Inc. (NYSE:NET), and Cisco Systems (NASDAQ:CSCO). Finally, the company is currently involved in federal securities fraud class action litigation while navigating rapid technological shifts.
Valuation comparison
Fastly looks cheaper based on its P/S ratio, measuring market cap against sales over the past twelve months, and Forward P/E, which tracks future earnings estimates.
| Metric | Datadog | Fastly |
|---|---|---|
| Forward P/E | 64.8x | 25.9x |
| P/S ratio | 15.1x | 3.6x |
Valuation metrics include those sourced from Financial Modeling Prep (FMP) and may differ from those of other data providers.
Which stock would I buy for 2027?
Fastly processes over 5 trillion requests a day, a huge number that is actually just a small part of the total addressable market (TAM) for the business. Management sees the TAM as $22 billion, giving it a long runway for growth. The company has posted three straight quarters of more than 20% growth (year-over-year).
One of the company's competitive edges, it says, is that it delivers its resources dynamically, allocating them in real time to whatever the load is on a global basis. So, for example, one Thursday night, its network might be delivering Thursday Night Football. On Black Friday, the exact same network is handling e-commerce. The next week, it might be handling a video game release. Fastly says that makes it a much more efficient network than competitors, which have siloed networks for security, compute, and delivery, et cetera.
For the current fiscal year, look for sales to grow to $741 million, a 19% rise over the prior year, with a much narrower net loss of about $72 million.
Datadog is fast-growing, with revenue expected by Wall Street analysts to jump more than 31% to $4.47 billion in fiscal 2026, and net income to nearly double to more than $203 million. Yet there is some customer concentration risk. It is believed OpenAI is Datadog's largest customer, accounting for more than $100 million--perhaps well more--according to various analyst reports. There are also vague concerns that AI could develop tools that can replace Datadog's services, but that is a general concern for just about any software provider these days.
The good news is Datadog usage continues to increase with both new and established customers. Spending by its largest customer group is rising, with the number of customers providing annual recurring revenue of more than $100,000 accelerating sequentially, up about 23% in the second quarter compared to the year-ago period. Demand seems broad-based across both its AI and non-AI customers. Revenue growth from its non-AI customers climbed meaningfully, too, signaling a ramp in its enterprise segment.
Each of these companies is hitched to cloud growth, but one, Fastly, is far more affordable. Datadog simply is too pricey right now. Long-term investors have a good stock at a reasonable price to add to their portfolio in Fastly.
Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Cisco Systems, Cloudflare, Datadog, Fastly, and Microsoft. The Motley Fool has a disclosure policy.