Datadog spent most of last year as the warning tale on AI. The pitch from short sellers: AI customers would build their own watching tools and ditch Datadog.
Q1 just made that pitch look very wrong.
The Beat
The cloud watching firm posted Q1 revenue of $1.006 billion, up 32% from a year ago. Wall Street had penciled in $961 million.
Adjusted earnings came in at 60 cents per share, beating the 51 cents analysts wanted. Adjusted gross margin held steady at 80%.
The customer count tells the story behind the numbers. There are 4,550 customers now spending $100,000 or more per year, up 21% from the same quarter last year.
Datadog also ended the quarter with $4.8 billion in cash on hand and $289 million in free cash flow.
AI Spending Is The Driver
CEO Olivier Pomel said customers are shifting to cloud and AI tools faster than the firm had planned. Datadog itself is using AI to speed up product work.
The bear case had been that Datadog's biggest cloud customer would build its own watching stack and walk. Instead, AI workloads are showing up as new line items on the bill.
Pomel pointed to early signs from AI-native customers, who tend to spend more as their AI products grow. That helps explain why the new guide was so far above what Wall Street had penciled in.
Guidance Got The Loudest Reaction
Datadog raised its full-year revenue forecast to a range of $4.30 billion to $4.34 billion. The prior range was $4.06 billion to $4.10 billion.
That is more than $240 million in extra revenue at the top end. EPS guidance also climbed, to $2.36 to $2.44 from $2.08 to $2.16.
For Q2, the firm now expects revenue between $1.07 billion and $1.08 billion. Wall Street was at $994 million.
How Rivals Stack Up
Datadog's main rivals are Splunk, now owned by Cisco, plus Dynatrace and New Relic. None of them have shown the same Q1 lift.
Wall Street has flagged Datadog as the cleanest AI play in the group. The split shows up in market value too.
Datadog now trades at a price-to-sales ratio more than double the rest of the group. Bears will say that gap leaves room to fall.
Bulls will say the gap shows the AI tailwind nobody else is catching as well. So far this year, the bulls have been right.
What to Watch
DDOG shares were up 30.30% to $187.25 in premarket trading on Thursday. That is the biggest single-session move in more than six years.
Datadog will host its annual DASH user event in June, where Pomel has said new AI tools are coming. The event is the next test for whether the AI tailwind keeps blowing in Datadog's direction.
A few sell-side firms have started to lift their targets. Guggenheim raised its price target on the stock to $225.
The next earnings call lands later this summer. By then, AI customer spend trends will be even clearer.
For now, the AI loser thesis is dead.
