2 infrastructure software stocks to buy in 2026: Piper Sandler By Investing.com

Piper Sandler sees the most confidence in Datadog and Varonis heading into upcoming earnings, citing derisked guidance, strong usage trends, and favorable competitive conditions. The firm expects Datadog to deliver a first-quarter beat-and-raise, helped by the new Datadog Experiments launch, while Varonis is seen as set up for a Q1 beat and a likely full-year guidance raise. Broader channel checks point to a stable demand environment, with security continuing to gain wallet share and U.S. demand remaining strongest.

Analysis

The setup is less about one-quarter beats and more about the durability of budget share in a software market that is still sorting winners from “good enough” AI add-ons. If channel checks are right, the real implication is that buyers are not ripping out core security/observability spend to fund AI pilots; they are re-tiering within software, which favors vendors that are already embedded in workflows and can upsell without big deployment friction. That creates a structural tailwind for names with high product pull-through and short payback periods, while lower-differentiation point solutions remain vulnerable to deferred renewals and pricing pressure.

The second-order effect is on competitive intensity: when demand is stable, the market punishes execution misses harder than in a growth scare, because there is less macro to hide behind. That should help the better-operated platforms widen share as customers prefer vendors that can demonstrate measurable usage expansion and security consolidation. In other words, the earnings reaction should be asymmetric: guidance confidence matters more than headline growth, and the stocks most likely to work are those where management can convert “AI relevance” into incremental wallet share rather than narrative.

The contrarian risk is that AI-related budget displacement is still early, not absent. A “normal” level of substitution today can become a real issue over the next 2-3 quarters if CIOs move from experimentation to hard ROI scrutiny, especially for analytics and adjacent tooling. The market may be underpricing how quickly procurement teams can force vendor consolidation if enterprise software spend stays flat, which would pressure weaker names even if the sector looks healthy on the surface.

Key Decisions for Investors

• Go long DDOG into earnings, but structure it as a defined-risk call spread for the next 2-6 weeks; the upside is a beat-and-raise rerating if usage trends hold, while downside is limited if the market has already partially priced in confidence.
• Long VRNS on any pre-earnings pullback, with a 1-3 month horizon; the asymmetry is attractive because conservative forward assumptions create room for upward guide revisions, but the trade should be sized for post-print volatility.
• Pair trade: long DDOG / short a lower-quality observability or broader software name over the next quarter; if budget share is being reallocated toward embedded platforms, the higher-quality compounder should continue to outperform on both growth and multiple resilience.
• Avoid chasing second-tier cybersecurity names with slower product pull-through until earnings confirm demand stability; the risk/reward is poor if AI-induced budget scrutiny tightens in the next 1-2 quarters.
• If DDOG or VRNS gaps up >8% on earnings, consider trimming into strength rather than holding full size, since the market may already be paying for several quarters of de-risked execution.