Review|DDOG 26Q2: Unchanged Fundamentals Met with Too-High Expectations

In our preview, we expected a solid print by DDOG, but expectations for 26Q3 guidance appeared full while stock positioning was crowded into the print, leaving poor risk-reward for the event. The 26Q2 beat was skinnier than the previous quarter’s, while the 26Q3 guide slightly missed elevated expectations, likely driven by optimization at OpenAI, its largest customer. Non-AI workload growth continued to accelerate with clear cross-sell strength, and the company signed more AI-native customers. Management also confirmed it has renewed its contract with OpenAI despite a sequential decline in usage. We remain positive on DDOG’s fundamentals and positioning in the AI era, and believe a valuation reset is healthy.

Result highlights: an expectation miss

• 26Q2 revenue grew 35.6% YoY, in line with buy-side expectations of 35-36%, accelerating 3ppts QoQ. However, the US$46m beat was slightly below the US$50m last quarter.
• 26Q3 revenue guidance was a touch light at 29.5% at the high end, where expectations were looking for a 3-handle. Applying a typical 5ppts beat would imply a marginal sequential growth deceleration in 26Q3.
• The miss appears mostly driven by usage optimization at OpenAI, DDOG’s largest customer. For 26Q2, we estimated a 20% QoQ decline in OpenAI’s spending, on which market consensus appeared too optimistic. Management confirmed it has renewed a 9-figure contract with OpenAI, but the latter’s usage will decline sequentially in 26Q3. We believe Chronosphere is gaining share within the OpenAI platform, as it prices 30-40% lower than DDOG.
• Core/non-AI usage growth continued to accelerate to high-20s from mid-20s, driven by strong cross-sell momentum and increasing usage from cloud migration and AI app development.