Do You Believe in Datadog’s (DDOG) Growth Potential?

Brown Capital Management, an investment management company, released its “The Brown Capital Management Small Company Fund” second quarter 2025 investor letter. A copy of the letter can be downloaded here. The small-cap US stocks rebounded in the second quarter following a challenging first quarter. The Small Company Fund returned 8.59% in the second quarter, lagging the Russell 2000® Growth index’s 11.97% return. The underperformance in the quarter occurred in the last few weeks of the period. In addition, check the fund’s top five holdings to know its best picks in 2025.

In its second-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 5.76%, and its shares gained 22.53% of their value over the last 52 weeks. On September 12, 2025, Datadog, Inc. (NASDAQ:DDOG) stock closed at $136.50 per share, with a market capitalization of $47.604 billion.

The Brown Capital Management Small Company Fund stated the following regarding Datadog, Inc. (NASDAQ:DDOG) in its second quarter 2025 investor letter:

“Among the contributors to performance in the second quarter of 2025 were Datadog, Inc. (NASDAQ:DDOG) and Guidewire Software (GWRE).

Datadog automates the monitoring of infrastructure, applications, databases, networks, logs and security. As we discussed last quarter, the company underperformed in the first quarter of 2025 despite delivering solid fourth quarter 2024 operating results, with revenue growth of 25% and above-consensus profitability. Last quarter, we noted Datadog’s weaker-than-expected 2025 revenue guidance but reasserted our strong belief that the company will sustain its strong growth in 2025 and its solid competitive positioning.

Indeed, Datadog reported strong first quarter 2025 results, growing revenue 25% and raising 2025 revenue growth guidance to 20% at the mid-point. Investors have come to appreciate our view that Datadog will continue to deliver 20%-plus growth in the medium term. Datadog actually lowered its operating margin guidance but investors were on board with its R&D investment, particularly in AI. This quarter, we attended Datadog’s annual DASH user conference at which the company showcased impressive AI capabilities in monitoring that have been integrated into its product offerings. We also validated our thesis that Datadog is gaining early traction in its security products. We believe Datadog remains a leader in monitoring and will succeed in driving revenue growth from new products and capabilities for years to come.”

Datadog (DDOG) Tumbles 11.4% on Analyst's "Sell" Reco

Datadog, Inc. (NASDAQ:DDOG) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 103 hedge fund portfolios held Datadog, Inc. (NASDAQ:DDOG) at the end of the second quarter, compared to 84 in the previous quarter. Datadog, Inc. (NASDAQ:DDOG) reported revenue of $827 million in the second quarter of 2025, marking an increase of 28% year-over-year. While we acknowledge the risk and potential of Datadog, Inc. (NASDAQ:DDOG) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than Datadog, Inc. (NASDAQ:DDOG) and that has 10,000% upside potential, check out our report about this cheapest AI stock.

In another article, we covered Datadog, Inc. (NASDAQ:DDOG) and shared the list of best tech stocks to buy for the long term. In addition, please check out our hedge fund investor letters Q2 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.