NEW YORK, August 6, 2026, 11:06 EDT – Shares of Datadog dropped after the monitoring platform’s main AI customer projected reduced activity for the rest of the year.
- Shares of Datadog dropped 14.2% to $242.90 early in the U.S. trading session.
- Revenue in the second quarter climbed 36% to $1.12 billion, while free-cash-flow margin stood at 25%.
- Initial midpoint calculations suggest fourth-quarter growth is about 25%, compared with 36% recorded in the second quarter.
Datadog, Inc. NASDAQ:DDOG stock dropped 14.2% on Thursday. Shares were at $242.90 at approximately 10:51 a.m. EDT, during active U.S. trading hours.
The decline came after the company posted quarterly results that surpassed expectations and raised its full-year outlook. However, investor attention shifted to lower usage reported from a key artificial intelligence client.
The main figure stands above the stated guidance. Based on its annual midpoint, Datadog projects fourth-quarter revenue to be approximately $1.192 billion. This indicates growth of around 25%, a decrease from the 36% recorded in the second quarter.
The expectations shift is sharp as Datadog shares had already more than doubled so far this year. Investors were anticipating a further uptick in momentum, not just another outperformance.
| Q2 metric | Reported | Comparison | Change |
|---|---|---|---|
| Revenue | $1.121 billion | $1.08 billion consensus | 3.8% above |
| Adjusted EPS | $0.65 | $0.58 consensus | 12.1% above |
| Customers with $100,000+ ARR | 4,720 | 3,850 year earlier | 22.6% |
| Non-GAAP operating margin | 23% | 20% year earlier | 3 points |
| Free cash flow | $278.7 million | $165.4 million year earlier | 68.6% |
The quarter delivered robust operational performance, with gains seen in revenue, margins, cash flow and growth among major customers.
Datadog posted “a strong quarter,” Chief Executive Olivier Pomel said. The company reported operating cash flow of $316 million and free cash flow of $279 million. Datadog
The company increased its full-year revenue midpoint to $4.46 billion, an uptick of $140 million and a 3.2% boost from the guidance given in May. The midpoint for adjusted earnings climbed by 5% to $2.52 per share.
The outlook factors in reduced usage by a significant AI client, despite that client having recently agreed to a nine-figure contract renewal. The distinction is important, as keeping the contract did not stop a short-term drop in consumption.
| Revenue path | Revenue | Year-on-year growth | Sequential growth |
|---|---|---|---|
| Q2 2026 reported | $1.121 billion | 35.6% | 11.4% |
| Q3 outlook midpoint | $1.140 billion | 28.7% | 1.7% |
| Q4 projected | $1.192 billion | 25.1% | 4.6% |
Preliminary estimate. The fourth-quarter number is calculated using annual and third-quarter midpoints, not as independent company guidance. The figures are based on reported revenue for Q1 and Q2, Q3 guidance, and the annual midpoint of $4.46 billion.
The midpoint projection suggests growth will slow by 10.6 points by the fourth quarter. Additional reductions from customers would add downward pressure, unless gains in other accounts make up the difference.
Demand outside of the largest accounts remains strong. The number of customers contributing at least $100,000 in annual recurring revenue increased by 23%. This marks an acceleration from 21% growth reported in the prior quarter.
The market response significantly exceeded the shifts seen among comparable peers.
| Company | Price | Daily move | Market value |
|---|---|---|---|
| Datadog | $242.90 | -14.2% | $88.6 billion |
| Dynatrace, Inc. (NYSE:DT) | $49.10 | -3.5% | $14.4 billion |
| Elastic N.V. NYSE:ESTC | $68.89 | -1.2% | $7.3 billion |
| Cloudflare, Inc. NYSE:NET | $289.06 | -1.3% | $101.9 billion |
Prices were logged at approximately 10:51 a.m. EDT.
The disparity suggests a shift in expectations unique to Datadog rather than indicating a general selloff within the observability sector.
Current analyst price targets are still higher than the intraday price. All of the following calls were made before Thursday’s results and customer announcement.
| Analyst | Recommendation | Target | Published |
|---|---|---|---|
| Rosenblatt Securities | Buy | $305 | Aug. 4 |
| Canaccord Genuity Group Inc. (TSE:CF) | Buy | $295 | Aug. 4 |
| BMO Capital Markets, unit of Bank of Montreal NYSE:BMO | Outperform | $310 | Aug. 3 |
| D.A. Davidson | Buy | $315 | July 31 |
| Jefferies Financial Group Inc. NYSE:JEF | Hold | $280 | July 21 |
Price targets are set between $280 and $315, equating to an increase of about 15% to 30% over Thursday’s intraday level. This range may tighten following the release of results.
Risks: Stock-based compensation totaled $220 million, accounting for almost 20% of revenue. GAAP operating margin stayed close to break-even, and gross margin declined by one percentage point. Customer concentration introduces added fluctuation to Datadog’s usage-driven income.
The upcoming test is if third-quarter growth remains close to 29%. Investors are also paying attention to usage beyond the primary AI account. That data will indicate whether Thursday’s drop represented an adjustment in expectations or an early signal of slower growth.
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