Datadog, Inc. (NASDAQ:DDOG) is a cloud infrastructure and application monitoring platform. Its shares are up by 102% over the past year and by 88% year-to-date. The shares closed a stunning 19% lower on August 6th after Datadog, Inc. (NASDAQ:DDOG) reported its second quarter earnings. On that same day, Cramer commented on the stock as the earnings hit the wires and called it a momentum play:
“I look at a company like DataDog, and DataDog, I’m going to be a little glib here by saying, people think it never misses. Now, when you go over DataDog line by line by line, and it’s not that big. . .They’re just momentum stocks, that people think, you know what, aren’t so good.”
As is the case with most software stocks, Datadog, Inc. (NASDAQ:DDOG)’s narrative is also about whether the firm will be able to stand on its own against the rise in AI platforms that enable businesses to develop their own software. On this front, the second quarter earnings provided key insights into the split between the bulls and the bears. During the quarter, Datadog, Inc. (NASDAQ:DDOG)’s revenue grew by 36% annually. The firm also raised its full year revenue per share guidance to $4.45 – $4.47 and its earnings per share outlook to $2.50 – $2.54. The positive aspects of the earnings led Datadog, Inc. (NASDAQ:DDOG)’s bulls to point out that the firm was experiencing significant tailwinds from AI catalysts.
However, the bears counter by pointing towards Datadog, Inc. (NASDAQ:DDOG)’s full year revenue outlook. While the firm increased the full year revenue guidance to $4.45 billion to $4.47 billion, this figure fell below the analyst estimates of $4.69 billion. Behind the miss was Datadog, Inc. (NASDAQ:DDOG)’s announcement that a major AI company was dialing down its usage. While Datadog, Inc. (NASDAQ:DDOG) didn’t disclose the customer’s name, some analysts were worried about OpenAI reducing usage before the earnings. The bears use this development to argue that future similar departures could create tailwinds for Datadog, Inc. (NASDAQ:DDOG). The bears combine these worries with the firm’s high forward P/E ratio of 107 to remark that the firm could suffer more than most.
Shifting towards the hedge funds, 75 out of the 1,041 hedge funds part of Insider Monkey’s Q4 2025 database had held Datadog, Inc. (NASDAQ:DDOG)’s shares. This figure jumped to 80 out of 1,022 funds in Q1 2026. In terms of movement, the hedge fund stakes are quite interesting. In Q1, the biggest stakeholder was Citadel Investment Group, whose $319 million stake marked a 200% jump. Others, such as Millennium Management and Balyasny Asset Management grew their stakes by 740% and 1,663%. Short interest as a percentage of float was 4% as of July end.
While Insider Monkey acknowledges the risk and potential of DDOG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than DDOG that has 100x upside potential, check out our report about the cheapest AI stock.
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Disclosure: None.
