DDOG: OpenAI Optimization Risk is Easing

Since July, we’ve spent a lot of time digging into DDOG. In early July we did a deep dive on DDOG’s new AI product, Bits AI, and we think it has significant long‑term potential.

In our 2Q25 preview, we noted that OpenAI was pushing hard to cut its DDOG spend—potentially by more than 80%. That became the focal point on the 2Q25 call: worries about optimization from a marquee AI customer (OpenAI) took the stock from a big pre‑market pop to a red close, reflecting that concern.

This quarter, we’re encouraged to see OpenAI’s appetite for further optimization fading. While OpenAI has aggressively optimized DDOG’s Log Management product in recent months, this may be the last major cut. DDOG could re‑accelerate soon.

The key reasons: as mid‑training and reinforcement learning ramp, DDOG’s role becomes more important; and as OpenAI speeds up training, it’s less focused on cost downs.

This quarter, we surveyed 3 top Datadog (DDOG) channel partners and tracked the developing relationship with OpenAI.

Overall, DDOG’s core business remained robust in 3Q. Cloud migration trends among traditional industries have accelerated this year, while usage from AI native customers (ex-OpenAI) is also ramping quickly.