Datadog, Inc.

DDOG · NASDAQ · USD

Can growth outside the largest customer keep accelerating fast enough to offset that customer's declining usage and the slowdown management guides to?

Last 4 earnings calls · through Q2 FY2026

Bull case

  • 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.

  • AI leaders as early customers

    Nearly every leading AI company already uses the platform, which management treats as an early look at how ordinary enterprises will buy observability as they adopt AI.

Bear case

  • 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.

  • General AI models improve

    General-purpose AI models keep getting better at analysing data, and the bear case holds that some of what Datadog charges for could be absorbed by them.

Bull and bear points

Growth & Execution

In short: Revenue growth has accelerated for several quarters, but guidance points to a sharp slowdown next quarter.

Bull · 2

  • Training workloads turn into a real market

    A year ago management said GPU monitoring brought in no significant revenue; now it is landing AI laboratories that use Datadog to observe model training runs.

    Tone shiftQ3 FY2025 → Q2 FY2026

  • Core non-AI customers keep accelerating

    Ordinary enterprises have grown faster for five straight quarters, so demand is not confined to AI startups and growth rests on a wider base.

    Q2 FY2026 call
Bear · 2

  • Next quarter's guide implies a sharp slowdown

    Management guides the third quarter to 28% to 29% growth against the 35.6% just reported, so the current pace is not being presented as the run rate.

    Q2 FY2026 call

  • New customer additions lose momentum

    The customer count barely grew in the quarter, and management attributes the variation to accounts moving between free and paid, which it says carries little revenue.

    Q2 FY2026 call

Profitability & Financial Strength

In short: Cash generation is strong and the balance sheet carries no debt, while gross margin has drifted lower.

Bull · 2

  • Cash flow near thirty percent of revenue

    Free cash flow reached $1.2 billion over the last twelve months, and because the platform runs on rented cloud capacity, capital spending stays small relative to revenue.

    Filed financials

  • Profit guidance raised alongside growth

    At the start of the year management guided to a 21% operating margin; it now guides to 23% while lifting revenue growth, so profit is rising with the business.

    Tone shiftQ4 FY2025 → Q2 FY2026
Bear · 2

  • Gross margin has slipped below 80%

    Gross margin was 78.6% in the latest quarter, down 1.3 points from a year earlier and under the roughly 80% level management has long used for planning.

    Filed financials

  • Share count grows through stock pay

    The diluted share count grew 15.2% between FY2022 and FY2025, so stock-based pay spreads the same profit across more shares.

    Filed financials

Market Position

In short: Datadog displaces legacy tools at large customers, but one customer can still move total growth.

Bull · 2

  • Replacing legacy and open source tools

    Customers consolidate many separate monitoring tools onto Datadog, and management counted nearly 100 deals in 2025 that displaced a large legacy logging vendor.

    Q4 FY2025 call

  • Hyperscalers now buy instead of build

    Management once called custom-built AI infrastructure a remote opportunity; it now lands the in-house AI labs of hyperscalers that historically built their own tooling.

    Tone shiftQ3 FY2025 → Q1 FY2026
Bear · 2

  • Largest customer's usage can fall

    Guidance used to apply the same conservatism across the base; this year management explicitly assumes nothing from its largest customer after a usage reduction at renewal.

    Tone shiftQ4 FY2025 → Q2 FY2026

  • General AI models improve quickly

    Management expects large language models to keep improving at analysis, which leaves open the risk that buyers use them instead of a monitoring platform for some tasks.

    Q4 FY2025 call