Brown Capital Management, an investment management company, released its “The Brown Capital Management Small Company Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. The Small Company Fund fared worse compared to its benchmark in the first quarter and declined 16.03% vs 11.12% decline for the Russell 2000® Growth index. The underperformance in the quarter was led by negative investor sentiment due to geopolitical shocks or the sudden deterioration of the macroeconomic outlook. In addition, check the fund’s top five holdings to know its best picks in 2025.
In its first-quarter 2025 investor letter, The Brown Capital Management Small Company Fund highlighted stocks such as Datadog, Inc. (NASDAQ:DDOG). Datadog, Inc. (NASDAQ:DDOG) is an observability and security platform for cloud applications. The one-month return of Datadog, Inc. (NASDAQ:DDOG) was 6.83%, and its shares gained 7.24% of their value over the last 52 weeks. On June 9, 2025, Datadog, Inc. (NASDAQ:DDOG) stock closed at $121.17 per share, with a market capitalization of $41.846 billion.
The Brown Capital Management Small Company Fund stated the following regarding Datadog, Inc. (NASDAQ:DDOG) in its Q1 2025 investor letter:
“Among the detractors to performance in the first quarter of 2025 were Glaukos (GKOS) and Datadog, Inc. (NASDAQ:DDOG). Datadog is a leading SaaS-based, information technology (IT)-monitoring and analytics software platform for developers, IT operations and business users. The platform automates the monitoring of infrastructure, applications databases, networks, logs and security. Datadog’s platform is differentiated by providing a unified view of these systems via a visual interface configured to the needs of each user (i.e., a single pane of glass). Datadog continues to innovate in security and AI-related products.
The company delivered solid operating results in the fourth quarter of 2024, reporting revenue growth of 25% and adjusted operating margins of 24%, just above consensus estimates. Datadog noted that usage growth is the fastest among enterprise customers, while small and mid-sized customers rose slightly. Datadog guided to 18% to 19% revenue growth for 2025. Datadog also guided to 400 basis points of operating margin contraction in 2025 (21% adjusted operating margin for 2025, or -2% GAAP operating margin according to our estimates) as it invests in R&D and sales & marketing. We believe Datadog’s weak guidance caused its shares to underperform, as investors worried about Datadog’s ability to sustain its current strong revenue growth in an uncertain economic environment. We remain confident in the company. First, we believe there is some conservatism in Datadog’s 2025 guidance. After all, it guided to 21% revenue growth in 2024 initially and ended up delivering 26%. Second, in the event of a slowdown in 2025, we think these headwinds would be transitory. We believe Datadog has a massive and underpenetrated total addressable market that is growing about 10% annually. We also believe Datadog has a strong competitive position in infrastructure monitoring and is gaining market share there. Last but not least, Datadog has been successful in launching new products such as application performance monitoring (more than $750 million ARR) and logs (more than $750 million ARR) in addition to its core infrastructure monitoring products (more than $1.25 billion ARR).”
A close-up of a laptop with a software engineer coding on the monitor.
Datadog, Inc. (NASDAQ:DDOG) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 84 hedge fund portfolios held Datadog, Inc. (NASDAQ:DDOG) at the end of the first quarter, which was 83 in the previous quarter. Datadog, Inc. (NASDAQ:DDOG) reported revenue of $762 million in the first quarter of 2025, an increase of 25% year-over-year. While we acknowledge the potential of Datadog, Inc. (NASDAQ:DDOG) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.
In another article, we covered Datadog, Inc. (NASDAQ:DDOG) and shared Sands Capital Select Growth Strategy’s views on the company. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
