Datadog, Inc.

(NASDAQ Global Select)
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Somewhat Bullish +45

Datadog Fell Nearly 12% in a Week. Wedbush Still Expects a Beat-and-Raise on November 4

Analyst upgrade Earnings report Financial outlook AI-generated analysis

πŸ“‰ Datadog shares fell nearly 12% last week due to AI spending fears, though analyst estimates remained unchanged.

πŸ”­ Wedbush expects a beat-and-raise on November 4, with the stock trading at 82x forward earnings versus a five-year average of 104x.

πŸ’° The company has topped high-end revenue guidance for three consecutive quarters, beating its own estimates comfortably.

πŸ“ˆ Analysts project third-quarter revenue near $1.15 billion, which is above the top of management's provided range.

πŸ€– Full-year guidance implies fourth-quarter growth of 25% to 26%, already accounting for usage cuts from a major AI customer.

πŸ“Š Growth from non-AI-native customers accelerated to the high 20s in the second quarter, providing a diversification buffer.

πŸ’΅ Free cash flow has exceeded $300 million for each of the last three quarters, though stock-based pay was $750.7 million in 2025.

πŸ“‰ The largest customer is a key risk; deeper cuts than planned or a sector-wide slowdown could impact fourth-quarter outlooks.

πŸš€ If Datadog raises its fourth-quarter outlook, the recent selloff may be viewed as an overreaction by investors.

Bullish Signals
  • Wedbush expects a beat-and-raise on November 4, suggesting analysts see more upside than the current market price reflects.
  • The company has topped high-end revenue guidance for three consecutive quarters, demonstrating consistent execution above Wall Street expectations.
  • Analysts project third-quarter revenue near $1.15 billion, which is already above the top of management's guidance range.
  • Growth from customers other than AI-native companies accelerated to the high 20s in the second quarter, showing diversification.
  • Datadog has beaten its own guidance comfortably for three consecutive quarters, indicating strong core business momentum.
  • The stock trades at 82x forward earnings, well below its five-year average of 104x, leaving room for a multiple expansion if estimates rise.
Risk Factors
  • Shares dropped nearly 12% last week due to fears that AI spending is slowing down among enterprise customers.
  • The largest customer, an unnamed AI company, renewed a nine-figure contract but started cutting usage in the third quarter.
  • Full-year guidance implies fourth-quarter revenue growth of only 25% to 26%, down from 36% in the second quarter.
  • Stock-based compensation was $750.7 million in 2025, accounting for most of that year's free cash flow generation.
  • If the largest customer's cuts run deeper than planned or another major AI buyer follows suit, it could negatively impact the fourth-quarter outlook.
Full Analysis
Datadog (DDOG) shares dropped nearly 12% last week amid broader market fears regarding AI spending, yet analyst estimates remained unchanged. Wedbush maintains a bullish outlook, expecting the company to deliver another beat-and-raise when it reports earnings before the open on November 4. The stock currently trades at approximately 82x forward earnings, which is significantly below its five-year average of 104x, suggesting potential upside if Wall Street's positive expectations are validated by upcoming results. The company has consistently topped high-end revenue guidance for the last three quarters, with analysts projecting third-quarter revenue near $1.15 billion, above the top of management's range. Full-year guidance implies fourth-quarter revenue growth of 25% to 26%, a deceleration from the second quarter but one that already factors in usage cuts from its largest customer, an unnamed AI firm. A beat on this metric would be the baseline scenario for investors. Beyond the headline numbers, analysts are closely watching Datadog's ability to grow revenue from customers other than AI-native companies, which saw growth climb to the high 20s in the second quarter. If Datadog can raise its fourth-quarter outlook on top of beating estimates, it would signal that fears about a slowdown in AI spending have not yet materialized among its client base. Conversely, deeper cuts from the largest customer or a sector-wide sell-off could weigh on the stock regardless of operational performance. Financially, Datadog has demonstrated strong cash generation, with free cash flow exceeding $300 million for each of the last three quarters. However, this is partially offset by significant stock-based compensation, which reached $750.7 million in 2025 and accounted for most of that year's free cash flow. The core business has accelerated into the current quarter, with the company beating its own guidance comfortably for three consecutive quarters despite recent market volatility.