Datadog Stock Soars 23%, Marking Second-Best Day Ever

Datadog shares surged 23% in Thursday trading, a notable spike fueled by the cloud monitoring and security company’s third-quarter earnings report that handily exceeded Wall Street’s expectations. The impressive results, coupled with a robust forecast for the fourth quarter, sent investors scrambling to buy the stock.

This marks Datadog’s second-best trading day on record, surpassed only by a 28% jump in November 2023.

The company reported revenue of $885.7 million, representing a 28% year-over-year increase and outstripping the $852.8 million consensus estimate from LSEG analysts.

Looking ahead, Datadog anticipates fourth-quarter revenue to land between $912 million and $916 million, significantly above the Wall Street forecast of $887 million. This bullish outlook underscores the company’s confidence in its ability to capitalize on the burgeoning demand for cloud-based security solutions, particularly those leveraging artificial intelligence.

The company’s strategic investment in AI-powered tools is proving to be a key growth driver. Over the past year, Datadog has aggressively rolled out numerous AI and security features designed to enhance its platform’s capabilities. This proactive approach is resonating with customers seeking to navigate the complexities of modern cloud environments and address evolving security threats.

“The Datadog R&D team is innovating rapidly to help our customers solve problems in the AI space,” CEO Olivier Pomel stated in a release, highlighting the company’s commitment to pushing the boundaries of AI-driven observability and security.

Datadog has been methodically expanding its AI-focused offerings. The June launch of Bits AI Agents for SRE (Site Reliability Engineering) provides an AI assistant capable of proactively investigating alerts and generating incident responses and status updates—a crucial capability for maintaining uptime and minimizing disruptions in critical systems. Further bolstering its AI capabilities, Datadog augmented its LLM (Large Language Model) Observability suite with new features over the summer, including agentic AI monitoring and expanded LLM experimentation. These advancements are designed to facilitate the development and deployment of AI applications while optimizing model performance.

June also saw the introduction of Datadog’s MCP Server, intended to connect AI agents with diverse data sources, enabling richer insights and more effective automation. Furthermore, the unveiling of its foundation model, TOTO, signifies Datadog’s deeper dive into core AI infrastructure, potentially opening avenues for customized AI solutions tailored to specific monitoring and security needs.

On the bottom line, adjusted earnings per share reached 55 cents, exceeding FactSet analyst estimates of 45 cents. This profitability reflects Datadog’s ability to efficiently scale its operations and monetize its expanding customer base.

The number of customers contributing at least $100,000 in annual recurring revenue (ARR) increased by 16% during the quarter. This metric is a key indicator of the company’s success in attracting and retaining high-value clients, solidifying its position as a leading provider of cloud observability and security solutions.

Datadog reported net income of $33.9 million, or 10 cents per share, down from $51.7 million, or 14 cents per share, in the same period last year. While the net income decrease warrants monitoring, it could be attributed to increased investments in R&D and sales & marketing to fuel future growth initiatives, particularly in the rapidly evolving AI landscape.