Issue #85

One observability leader and one identity specialist. Both are now profitable.

The software revolution isn't just about who builds the most clever application—it’s about who ensures those systems are secure, visible, and authentic in an increasingly complex digital world. As the enterprise landscape shifts toward total cloud immersion and AI-driven automation, the "invisible" layers of the tech stack are becoming the most valuable realties in the market.

Real growth is moving away from the speculative and toward the essential: the tools that prevent fraud before it happens and the platforms that monitor the health of global digital infrastructure in real-time.

👉 One company has become the essential nervous system for the modern cloud, allowing the world’s largest enterprises to monitor, secure, and scale their AI workloads with surgical precision.

👉 The other is a nimble, high-margin specialist that has cracked the code on identity fraud, turning the tide against synthetic fakes and "deepfake" identities for banks and retailers.

👉 Both are now profitable, trading at attractive entries relative to their growth, and are becoming indispensable to the security of the modern economy.

In this edition, we break down the observability giant and the identity gatekeeper—two software stocks sitting at the intersection of security and scale, and why they represent a foundational opportunity for the next leg of the tech cycle.

Datadog (NASDAQ: DDOG)

Datadog (NASDAQ: DDOG) is a premier observability and security platform for cloud applications, designed to provide developers, IT operations, and security teams with real-time visibility into their entire technology stack. Its comprehensive SaaS platform integrates infrastructure monitoring, application performance monitoring (APM), log management, and cloud security into a single, unified "pane of glass."

Business Model and Revenue Streams 📦

Datadog’s business model is centered on a cloud-native, subscription-based SaaS platform that scales with the digital footprint of its customers. The company utilizes a "land and expand" strategy, where it initially enters an organization with a single monitoring tool and subsequently upsells additional modules as the client's cloud environment becomes more complex.

• Subscription Revenue: This is the primary driver of growth, generated through tiered pricing based on the number of hosts monitored, the volume of logs ingested, or the amount of data analyzed.
• Multi-Product Adoption: A significant portion of revenue now comes from existing customers adopting multiple products. As of late 2025, over 85% of customers use two or more products, with 18% now utilizing eight or more modules, creating a high-stickiness "ecosystem" effect.
• AI-Native Expansion: Datadog has aggressively integrated AI into its revenue model through products like LLM Observability and Bits AI (an AI-powered SRE agent). These tools are specifically designed to help enterprises monitor and secure their own generative AI applications, tapping into a new and rapidly growing budget pool.

The company’s performance is sensitive to macroeconomic cloud spending trends. While high interest rates or economic uncertainty can lead to "cloud optimization" (where companies try to cut their cloud bills), Datadog has mitigated this by positioning itself as a cost-saving tool that helps engineers find inefficiencies. Recent U.S. federal policies regarding cybersecurity standards have also acted as a tailwind, as Datadog achieved FedRAMP High "In Process" status in 2025, opening doors to massive public sector contracts in 2026.

Recent Performance and Corporate Developments 📈

Datadog reported stellar results for the fourth quarter and full fiscal year 2025 on February 10, 2026, showcasing its ability to outpace the broader software sector.

Q4 2025 Financial Highlights: 💰

• Total Revenue: Q4 revenue reached $953 million, a 29% increase year-over-year, significantly beating analyst expectations.
• Full-Year Growth: For the full year 2025, revenue totaled $3.43 billion, up 28% from 2024.
• Record Bookings: The company posted record bookings of $1.63 billion in Q4, a 37% annual increase, signaling strong future demand.
• Customer Milestones: Datadog now has 603 customers with an Annual Recurring Revenue (ARR) of $1 million or more, a 31% increase from the previous year.

Strategic Initiatives and Mergers: 🤝

In early 2025, Datadog made two strategic acquisitions to bolster its platform: Metaplane (data observability) and Eppo (product analytics and feature flagging). These moves have allowed Datadog to move further "upstream" into the software development lifecycle. More recently, the company expanded its strategic collaboration with AWS, focusing on AI-native security and remediation tools to combat emerging threats like prompt injection in AI models.

Profitability and Fair Value 🎯

Datadog is a rare "Rule of 40" company, meaning its combined revenue growth and profit margin exceed 40%. The company generated a massive $915 million in free cash flow in 2025, with a free cash flow margin of 31%.

While its GAAP profitability remains lean due to heavy investment in R&D, its Non-GAAP operating margin stood at 24% for Q4 2025. In terms of fair value, the stock presents a classic "growth at a premium" scenario. It currently trades at a forward Price-to-Sales (P/S) ratio of roughly 10.7x. While this is higher than the industry average, Discounted Cash Flow (DCF) models from analysts at Simply Wall St and others suggest an intrinsic value closer to $184 to $217 per share, implying that at current levels (around $130), the stock may be undervalued by as much as 30% relative to its long-term cash-generating potential.

Analyst Estimates and Ratings 📊

• Consensus Rating: The consensus remains a "Strong Buy." Approximately 90% of analysts covering the stock have a positive rating.
• Recent Upgrades: Following the February 2026 earnings beat, TD Cowen raised its price target to $215, while Rosenblatt reiterated a $185 target.
• 12-Month Price Target: The average analyst price target sits at approximately $165, suggesting a healthy 25% upside from recent trading prices.

Investor-Focused Takeaway: Is DDOG Right for Your Portfolio?

Datadog is no longer just a "monitoring tool"; it is becoming the essential nervous system for the AI-enabled enterprise. Its inclusion in the S&P 500 in July 2025 marked its transition into an institutional staple. For investors, the combination of high recurring revenue, 120% net revenue retention, and a dominant position in the "AI observability" niche makes it a compelling growth play.

What to Watch in the Near Term: 📈

• 2026 Guidance: Management has provided a conservative revenue target of $4.06B–$4.10B for 2026. Watch for "beat and raise" quarters if AI adoption accelerates.
• Federal Contracts: Final FedRAMP High authorization in 2026 could be a major catalyst for lumpy, high-value government deals.
• Competitive Pressure: Keep an eye on Cisco (via Splunk) and IBM, which are aggressively trying to consolidate the observability market.

Recommendation:

Datadog (DDOG) is a "Buy" for long-term investors looking for exposure to cloud infrastructure and AI security. While its valuation will always command a premium, its industry-leading margins and massive cash pile ($4.5 billion) provide a significant cushion against market volatility.

Intellicheck (NASDAQ: IDN)

Intellicheck (NASDAQ: IDN) is a high-growth identity validation company that has successfully pivoted from a legacy hardware focus to a high-margin Software-as-a-Service (SaaS) powerhouse. Its platform specializes in real-time identity authentication, helping banks, retailers, and law enforcement agencies detect fraudulent government-issued IDs with a 99.9% accuracy rate in under a second.

Business Model and Revenue Streams 📦

Intellicheck’s business model has undergone a strategic transformation, moving away from low-margin hardware toward a scalable, high-margin SaaS model. The company operates a proprietary platform that analyzes the hidden security features of IDs (rather than just scanning barcodes) to catch high-tech "fake IDs" that traditional scanners miss.

• SaaS Subscription Revenue: This is the core of the business, accounting for approximately 98% of total revenue. It is primarily transaction-based, meaning as customers verify more IDs, Intellicheck earns more fees.
• Vertical Diversification: Historically dependent on the retail sector, Intellicheck has aggressively expanded into Banking and Lending, which now represents 50% of its revenue. It also targets high-stakes industries like Title Insurance and Automotive Sales, where identity fraud can cost companies hundreds of thousands of dollars per incident.
• Product Innovation: The company recently launched an in-house Optical Character Recognition (OCR) product. By bringing this technology in-house, they are reducing reliance on third-party providers and further expanding their profit margins.

Macroeconomically, Intellicheck is remarkably resilient. While general retail spending may fluctuate, identity fraud and "Deepfake" technology are on the rise, making Intellicheck’s services a "must-have" security expense rather than a discretionary one. High interest rates have also driven banks to be more cautious about fraudulent loan applications, increasing demand for Intellicheck’s rigorous verification tools.

Recent Performance and Corporate Developments 📈

Intellicheck reached a major financial inflection point in late 2025, moving from a history of losses to consistent profitability.

Q3 2025 Financial Highlights: 💰

• Total Revenue: Hit a record $6.01 million, a 28% increase year-over-year, beating analyst estimates.
• Profitability: The company posted a positive net income of $290,000 ($0.01 per share), a massive swing from the $837,000 loss in the same period the previous year.
• Gross Margins: Maintained an industry-leading 91% gross margin, reflecting the extreme efficiency of their SaaS platform.
• Strategic Wins: Secured a massive, multi-year contract with a regional bank worth a "high seven-digit" figure, solidifying their footprint in the financial services sector.

Strategic Initiatives and Mergers: 🤝

There have been no recent mergers, as the company is focused on organic expansion. A key operational milestone was completing the migration of its last large bank client to the AWS cloud platform in late 2025. This migration has streamlined their operations, allowing them to scale without significantly increasing their operating expenses.

Profitability and Fair Value 🎯

Intellicheck is currently in the "sweet spot" of its growth cycle: revenue is climbing rapidly while operating expenses remain relatively flat. This "operating leverage" means that almost every new dollar of revenue now drops straight to the bottom line.

In terms of fair value, the stock is currently trading around $5.00–$6.00. Many analysts believe it is significantly undervalued given its 90%+ gross margins and zero-debt balance sheet. Using a Discounted Cash Flow (DCF) model, some financial analysts have set an intrinsic fair value closer to $7.80 to $8.00, suggesting the stock could be undervalued by nearly 35%.

Analyst Estimates and Ratings 📊

• Consensus Rating: The consensus is a "Moderate Buy" to "Strong Buy." * Price Targets: Wall Street analysts have recently raised their targets following the profitability beat. The average 12-month price target is $7.25, with some aggressive targets as high as $8.93.
• Recent Momentum: Firms like HC Wainwright and Northland Securities have reiterated "Buy" ratings in the last 30 days, citing the company's successful pivot into banking and title insurance.

Investor-Focused Takeaway: Is IDN Right for Your Portfolio?

Intellicheck offers a rare combination of a micro-cap "cheap" stock (market cap around $120M) that has already proven it can be profitable. As synthetic identity fraud and AI-generated fakes become more common, Intellicheck’s specialized tech becomes increasingly valuable.

What to Watch in the Near Term: 📈

• Contract Extensions: Look for news on existing clients (especially their largest credit card issuer) renewing their "buckets" of transactions in early 2026.
• New Verticals: Watch for further penetration into the Title Insurance market, which is a high-margin, low-competition area for ID validation.
• M&A Potential: Given its clean balance sheet and unique tech, Intellicheck could eventually become an acquisition target for a larger cybersecurity firm like Okta or CrowdStrike.

Recommendation:

Intellicheck (IDN) is an excellent "under-the-radar" play for 2026. While smaller and more volatile than Datadog, its newly achieved profitability and defensive positioning against fraud make it a strong candidate for a growth-oriented portfolio.

Final Take: The Observability Brain and the Identity Gatekeeper

The digital revolution isn’t just about who builds the fastest app—it’s about who ensures that app is always on, always secure, and always authentic. That requires two things: a platform that can see through the complexity of the cloud and a gatekeeper that can verify a human identity in a world of AI-generated fakes.

That’s where Datadog (DDOG) and Intellicheck (IDN) stand apart.

📊 Datadog (DDOG) — The Digital Nervous System of the Modern Cloud

• ✔ The Gold Standard: The go-to "single pane of glass" for Fortune 500 companies managing massive AI and cloud workloads.
• ✔ High-Velocity Expansion: 85% of customers use two or more products, creating an incredibly sticky and scalable ecosystem.
• ✔ Powerhouse Financials: A "Rule of 40" winner with nearly $1B in annual free cash flow and a massive $4.5B cash cushion.
• ➤ Best for: Investors seeking a high-moat, blue-chip software compounder that is the primary beneficiary of the world’s shift to cloud-native AI.

🛡️ Intellicheck (IDN) — The Identity Gatekeeper in an Era of Deepfakes

• ✔ Precision at Scale: 99.9% accuracy in sub-second identity validation, now essential for banks and high-value retailers.
• ✔ Profitable Pivot: Successfully transitioned to a 90%+ gross margin SaaS model with zero debt and positive net income.
• ✔ Mission-Critical Tech: As synthetic identity fraud explodes, Intellicheck’s proprietary tech has moved from a "luxury" to a "must-have" security expense.
• ➤ Best for: Investors looking for a high-growth, undervalued micro-cap with significant operating leverage and massive upside as it penetrates the banking sector.

Investor Insight

🧩 Want global cloud dominance and compounding recurring revenue? → DDOG

⚙️ Want a high-margin, profitable specialist fighting the front lines of fraud? → IDN

Bottom Line:

Digital infrastructure doesn’t scale on hope—it scales on visibility and trust.

Datadog provides the visibility to keep the world’s software running, while Intellicheck provides the trust that keeps the global economy secure. As enterprise spending shifts toward resilience and security, DDOG and IDN aren’t just software stocks—they are the foundation of a secure digital future.

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Happy Trading
​— Team Premium Stock Alerts