Buy Splunk, Sell Datadog: Analyst Lays Out 2023 Strategy For IT Investors

There is likely to be a slowdown in enterprise software spending growth in 2023. “Commentary by IT buyers, vendors, and channel partners suggests very low IT purchasing in the first half,” according to KeyBanc Capital Markets.

The Enterprise Software Analyst: Michael Turits said in the note that there could be a reacceleration in software spending growth in the second half of 2023 and 2024, but the visibility around timing is low.

“While software multiples are now at or below pre-COVID 10-year average levels, we expect continued downward 2023E revenue revisions this earnings season, if in many cases offset by upward revisions to margin,” the analyst wrote.

The Enterprise Software Rating Changes: Turits upgraded the rating for Splunk Inc (NASDAQ: SPLK) from Sector Weight to Overweight, while establishing a price target of $130.

The analyst downgraded the rating for Datadog Inc (NASDAQ: DDOG) from Overweight to Sector Weight.

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Turits suggested a two-pronged strategy, which includes broadening positions in defensive stocks like Splunk and reducing exposure in "cloud-enabler" growth stocks like Datadog.

SPLK, DDOG Price Action: Shares of Splunk had risen by 0.87% to $105.48, while Datadog’s stock had declined by 0.33% to $79.20 at the time of publication Monday.

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