Datadog After the Rally: Worth Chasing?

February 11th, 2026 by Trefis Team
DDOG: Datadog logo
DDOG
Datadog

Datadog reported Q4 2025 earnings that beat across the board. Revenue hit $953 million—29% growth year-over-year—crushing the $916.5 million consensus estimate by 4%. Adjusted EPS came in at $0.59 versus $0.55 expected. The stock closed at $129.67, up 14% from $114.01. Investors rewarded the beat and accelerating growth trends.

Furthermore, management guided fiscal 2026 revenue to $4.06-$4.10 billion, implying 20% growth at the midpoint. That’s a deceleration from 28% in fiscal 2025, but this was expected at a $3+ billion scale. The market reacted positively because growth is stabilizing rather than collapsing. For fiscal 2026, they’re projecting adjusted EPS of $2.08-$2.16, showing continued margin expansion.

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How strong was the revenue growth?

Q4 revenue grew 29% year-over-year from $738 million to $953 million. For the full fiscal year 2025, Datadog generated $3.43 billion in revenue, representing 28% annual growth. The company guided fiscal 2026 revenue to $4.06-$4.10 billion, implying roughly 20% growth at the midpoint. The deceleration is expected at this scale, but 20% growth for a $3+ billion revenue business is solid execution, and it seems to be conservative.

What’s happening with customer expansion?

The customer base grew from 30,000 to 32,700—a 9% increase. But the real story is upmarket movement. Customers spending $1 million+ annually jumped from 462 to 603, adding 141 new million-dollar accounts. That’s 30% growth in this high-value cohort. These large enterprise customers generate predictable, sticky revenue with lower churn.

Are they successfully cross-selling?

84% of customers now use two or more Datadog products, up from 83%. More significantly, 31% use six or more products versus 26% a year ago. This platform consolidation matters—each additional product increases switching costs and expands wallet share within existing accounts. Security ARR grew in the mid-50s percentage range year-over-year, demonstrating its ability to sell beyond core observability.

What’s the AI revenue contribution?

AI-native customers represent 12% of total revenue, up from 11% last quarter. But here’s the more important data point: non-AI-native customer revenue growth accelerated to 20% year-over-year from 18% in Q2. The broad-based business is re-accelerating, proving Datadog isn’t dependent on AI hype to drive growth.

Where do profitability metrics stand?

Gross margin in Q4 reached 81.4% with gross profit of $776 million. Adjusted operating income was $230 million, translating to a 24% operating margin. For fiscal 2026, management guided non-GAAP EPS to $2.08-$2.16, implying continued margin expansion as the business scales. Free cash flow in Q4 was $291 million with 31% FCF margins.

What’s the valuation after the pop?

At roughly $130 per share post-earnings, Datadog trades at approximately 61x the midpoint of fiscal 2026 EPS guidance ($2.12). For a software company growing revenue 20%+ with expanding margins and 120%+ net retention rates, that multiple is not cheap. The premium reflects quality, but any growth deceleration will compress the multiple quickly. With analysts’ average price estimate at $185, there seems to be ample room for growth despite the recent surge.

What are the downside risks?

Cloud spending cycles pose the primary risk. Datadog’s usage-based pricing model means revenue directly correlates with customer cloud consumption. If enterprises aggressively optimize cloud spending or slow infrastructure expansion, Datadog feels it immediately. Competition from Dynatrace, Elastic, and cloud-native tools from AWS/Azure/Google adds pressure. Also, OpenAI’s reported move away from Datadog creates headline risk, though management downplayed the impact.

Also, DDOG has historically underperformed the S&P 500 during market downturns but has demonstrated strong recovery potential. During the 2020 COVID-19 pandemic, the stock dropped 42.1% compared to the index’s 33.9% decline, yet it fully recovered within two months. Similarly, during the 2022 inflation shock, DDOG plummeted 68.1%—significantly steeper than the S&P 500’s 25.4% dip—before reclaiming its pre-crisis peak in late 2025. While the stock reached a new high of $199.72 in November 2025, it currently trades near $130.

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