Datadog Q2 2026: Revenue Up 36% and Guidance Raised, but the Stock Fell 17%

TradingKey - Datadog (DDOG) announced second-quarter results before the market opened on August 6. Wall Street analysts expected Datadog to report quarterly earnings of about $0.58 per share and quarterly revenue of $1.08 billion. However, Datadog came out with quarterly revenue of $1.12 billion. On the other hand, Datadog also surpassed Wall Street’s quarterly earnings per share estimate of $0.58 with quarterly earnings per share of $0.65. As a result of the strong performance of Datadog's business, the company also raised its full-year revenue guidance to a new range of $4.45 billion to $4.47 billion. Datadog also raised its adjusted full-year earnings guidance to a new range of $2.52 per share. On a pretty standard day in the markets, the quarter Datadog reported was spectacular. On the other hand, it was pretty much expected given how well Datadog shares have done in recent years.

The Quarter Was a Beat and Raise

Expectations are the answer. Datadog came into the report showing growth of roughly 100% for the year, having increased from its 52-week low near $98 to its all-time high above $292, just a few days earlier, and maintained a market cap of approximately $90 billion. 

At that figure, a beat was already a given, so the report needed to clear a much higher, informal bar than the stated expectations. It did not clear it by enough. Rising market activity overall on the day - Nasdaq was flat - evidences that the move was specific to Datadog rather than being part of a broader selloff. 

This is the classic “buy the rumor, sell the fact” pattern: when a stock has run this far, even genuinely good news can prompt profit-taking. This guidance adds to the concern. For the third quarter, revenue is expected to be in the range of $1.135 billion to $1.145 billion, which is only modestly above the second quarter’s figures, and the published adjusted earnings came in at $0.63 to $0.65, which is around the level just reported, suggesting that margins will not expand significantly in the near term. Free cash flow margin declined to approximately 25% from nearly 29% the prior quarter.

Why a Beat-and-Raise Still Fell 17%

Datadog posted a +100% YoY growth for the period in the report due to a +52 week low near $98, resulting in an all time high above $292, with a market cap of ~$90 billion. Impressive numbers for any press prior to the report.

The negative estimates that accompanied the caution. Third quarter revenue is guided to a range of $1.135 billion to $1.145 billion, only slightly above the second quarter, and the adjusted earnings guide of $0.63 to $0.65 is in the vicinity of the last reported figures, suggesting margins might not expand very much in the near term. Free cash flow margin slipped to about 25% from nearly 29% the previous quarter.

The guidance added to the caution. Third quarters are guided toward below second quarters, and the positive earnings expectations are in the range of the prior expected negative estimates. Free cash flow margin slipped to about 25% from nearly 29% the previous quarter.

The Bigger Question: Is Core Growth Slowing?

The core of the valuation story is the real debate about the durability of Datadog's growth. The company's core service is observability, which refers to software that helps businesses monitor and secure their cloud applications, and some analysts are concerned about the potential slowdown in this traditional monitoring, even as interest in products relating to AI increases. Bernstein downgraded the stock last month due to concerns about Datadog's growth. The bulls contend that AI will lead to an expansion of the software and infrastructure that needs to be monitored, which will lengthen Datadog's growth runway. Thursday's 36% growth and raised guidance lend credence to the bullish position. However, the market's response has shown that investors want evidence that the pace will hold, as opposed to proving that the pace held this quarter.

The AI Observability Story

The way Datadog responds to the growth challenge is to place more reliance on AI. Throughout the quarter, it released its Bits AI tools, Bits Code, Bits Chat and Bits Agent Builder, and completed its acquisition of Adaptive ML. It has also rolled out over 100 new features including GPU monitoring and higher-level government security certification.

Datadog Price Chart - Source: Tradingview

The argument is that as companies build and run AI systems, they will need to observe and secure them, and Datadog wants to be the platform they use to do it. 

Key Levels

• Resistance:  $242.03, $257.66, $275.59
• Support:  $214.21, $204.42, $195.15
• 50 EMA:  $266.22 (well above the price after the drop)
• 100 EMA:  $242.03 (the first level to reclaim)
• RSI:  28, oversold, which can lead to a short-term bounce
• Recent high:  $292.72 (the level the stock fell from)

Why did Datadog stock fall if it beat earnings?

Even though it surpassed expectations regarding both revenue and earnings, and raised its full-year guidance, the stock still fell approximately 17%. The reason had nothing to do with the earnings, and more to do with valuation and the run-up. During this time, shares nearly doubled (and even set new records), so a beat was anticipated. The guidance, while raised, indicated only rather minimal sequential growth, and that was not sufficient to justify the elevated price. As a result, investors sold.

Is Datadog stock a buy after the drop?

This largely relies on your opinion of the valuation and growth. The company is growing revenue and cash flow by almost 36% with a strong product portfolio augmented with AI and ML applications, and the stock is much cheaper than it was just a week earlier. However it remains a slightly expensive software stock, and some analysts believe there is a slowdown in core customer demand. A falling stock can be very volatile. Datadog stock price is expected to be anywhere from the low $200s to a Street high of $330. (Analysis, not financial advice.)

Bottom Line

In the second quarter of 2026, Datadog posted a strong quarter on its own terms. For example, compared to last year's results, Datadog's quarter experienced an incredible 36% year-over-year (YOY) growth, which also represented an earnings beat. Beyond that, Datadog further strengthened its results with healthy cash flow, and a raised outlook for the full-year 2026 results. In the eyes of the investment community, compared to last year's results, a 17% decline in Datadog's quarter was mostly a performance issue, and not a price issue. 

With almost double-digit growth in 2026, the stock was expected to break even, or even go a little forward, only providing minor forward guidance. But that was not even enough to keep it going upward. A stock's main concerns are should the current demand for real-time observability hold, and should the company's AI products support this demand and provide the next phase of company growth? The stock's technical status is that, with the price dipping to oversold levels at $232 below the key moving averages, a minor price bounce is probable from this current level. However, the price needs to rebound above the key moving averages for $242 and $257 levels to be considered technically accurate.