Datadog beat on revenue, beat on earnings, raised full-year guidance - and the stock cratered 18% anyway. The cloud monitoring company reported Q2 revenue of $1.12 billion, up 36% and past the $1.08 billion consensus. Non-GAAP EPS of $0.65 crushed the $0.58 estimate. Management lifted the full-year outlook to $4.45-$4.47 billion. The stock had nearly doubled in 2026 before the report, closing near its all-time high the day before earnings.
None of it mattered. Datadog’s largest client - widely believed to be OpenAI - told the company it plans to scale back usage in the second half. Analysts estimate that customer’s annual recurring revenue could drop from $240 million to $80 million by Q4 as it shifts to internally built tools. Q3 guidance implies 28-29% revenue growth, down from 36%.
Datadog sells picks and shovels to the AI gold rush. It just found out its best customer is learning to forge its own.
Here's how the community voted
Revenue beat by nearly 4%, EPS beat by 12%, and full-year guidance went up despite baking in the customer pullback. RPO grew 43% to $3.47 billion, showing enterprise contracts are getting longer and larger. The selloff created an ~$19 billion discount on a business that just posted its strongest quarter ever.
AI-native customers make up roughly 12% of revenue and are growing at triple-digit rates year over year. Fourteen of the top 20 AI companies use the platform. LLM Observability adoption is surging, with traced span volume nearly tripling quarter over quarter. The OpenAI risk is one customer - the broader AI observability wave is still accelerating.
Platform stickiness is elite. Fifty-eight percent of customers use four or more of Datadog’s 25+ products, up from 52% a year ago, and 13% now use ten or more. Net revenue retention is in the low 120s. Gross margins run near 80%, and the company generated $279 million in free cash flow last quarter.
One customer - believed to be OpenAI - accounts for an estimated $240 million in annual recurring revenue. That figure is expected to drop to $80 million by Q4 as the client builds internal observability tools. If AI-native companies follow the same pattern, Datadog’s fastest-growing cohort becomes its fastest-shrinking.
Even after the drop, Datadog trades at roughly 87x forward earnings - quadruple peers like Dynatrace at 21x and Elastic at 22x. CEO Olivier Pomel sold $44 million in stock in July through a pre-arranged trading plan. Free cash flow margins contracted from 29% to 25% quarter over quarter.
Q3 guidance implies 28-29% revenue growth, down sharply from 36% in Q2. The company needs to replace $160 million in at-risk ARR from a single customer just to hold its growth rate steady. Open-source alternatives like Grafana and OpenTelemetry are gaining traction, and hyperscalers are bundling native observability into their cloud platforms.
Revenue beat by nearly 4%, EPS beat by 12%, and full-year guidance went up despite baking in the customer pullback. RPO grew 43% to $3.47 billion, showing enterprise contracts are getting longer and larger. The selloff created an ~$19 billion discount on a business that just posted its strongest quarter ever.
AI-native customers make up roughly 12% of revenue and are growing at triple-digit rates year over year. Fourteen of the top 20 AI companies use the platform. LLM Observability adoption is surging, with traced span volume nearly tripling quarter over quarter. The OpenAI risk is one customer - the broader AI observability wave is still accelerating.
Platform stickiness is elite. Fifty-eight percent of customers use four or more of Datadog’s 25+ products, up from 52% a year ago, and 13% now use ten or more. Net revenue retention is in the low 120s. Gross margins run near 80%, and the company generated $279 million in free cash flow last quarter.
One customer - believed to be OpenAI - accounts for an estimated $240 million in annual recurring revenue. That figure is expected to drop to $80 million by Q4 as the client builds internal observability tools. If AI-native companies follow the same pattern, Datadog’s fastest-growing cohort becomes its fastest-shrinking.
Even after the drop, Datadog trades at roughly 87x forward earnings - quadruple peers like Dynatrace at 21x and Elastic at 22x. CEO Olivier Pomel sold $44 million in stock in July through a pre-arranged trading plan. Free cash flow margins contracted from 29% to 25% quarter over quarter.
Q3 guidance implies 28-29% revenue growth, down sharply from 36% in Q2. The company needs to replace $160 million in at-risk ARR from a single customer just to hold its growth rate steady. Open-source alternatives like Grafana and OpenTelemetry are gaining traction, and hyperscalers are bundling native observability into their cloud platforms.
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DDOG is a constant Diamond, truly a remarkable company with great execution :)
Great company, so has to be a diamond. AI is still just software, so if AI does dominate, a lot of it should be built on DDOG. If the AI hype collapses.. then conventional software will still rule. OpenAI (rumored) dropping them is kind of standard SaaS stuff - companies reach a scale where it just makes sense to build rather than buy. But... the reality is I personally would not touch this at such a high multiple. Good luck to those that hold directly though.