Datadog, Inc.

DDOG · NASDAQ · USD

Analysis

Last 4 earnings calls · through Q2 FY2026

Datadog's growth has accelerated for four straight quarters, to 36%, and the surprise is that ordinary cloud customers, not AI start-ups, are doing the accelerating. What the story now turns on is how much the biggest AI customer's spending swings. How much of this quarter's growth came from the largest AI customer?

  • The growth is now coming from ordinary cloud customers.

    Growth outside the AI cohort has accelerated for five straight quarters, to the high 20s, on the same sales team selling the same products to enterprises still early in their cloud move. The base is wider than the AI headlines suggest. Which products drove most of the non-AI acceleration this year?

  • The biggest customer's usage fell, and management stopped counting on it.

    Datadog renewed a 9-figure contract with its biggest AI customer, then watched its usage fall. That account alone can swing reported growth, so management took it out of the plan for the rest of the year. Did the renewal lower what that customer pays per unit?

  • The service is getting less profitable to deliver.

    Datadog gives larger discounts to customers who commit to more, and it has more of them now, so its gross margin has fallen for four straight quarters. Growth now has to outrun that discounting for profit to improve.

Bullish
  • Replacing many monitoring tools
    The bull case is that Datadog replaces many separate monitoring tools at large companies, so each new account brings more products and more spending over time.
  • Non-AI customers accelerating
    Demand from ordinary enterprises, not just AI startups, has accelerated for several quarters as customers move workloads to the cloud and add products.
  • Training workloads open up
    Management now lands AI laboratories for model training, a workload it had said was not yet a market, which widens the pool of very large deals it can pursue.
Bearish
  • Single customer concentration
    The bear case is that one very large customer can reduce its usage and move total growth, and management has chosen to assume nothing from it in guidance.
  • Guided growth deceleration
    Growth is guided to slow sharply next quarter even though the full-year target was raised, which suggests the recent pace is not the rate the company plans on.
  • Gross margin drift
    Gross margin has fallen below the level the company has long used for planning as larger customers negotiate volume prices and AI workloads cost more to serve.
See the full bull & bear case
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