Datadog, Inc. (NASDAQ:DDOG) has spent years building a business around a simple problem: modern software is becoming harder to manage. Companies now run applications across clouds, containers, databases, and increasingly complex infrastructure, creating more data and more things that can go wrong.
AI is adding another layer to that complexity. But the opportunity is broader than AI alone. The company’s non-AI customer base is actually accelerating, while AI is creating new workloads that need to be monitored, secured, and managed.
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AI is expanding Datadog’s opportunity
Datadog’s management sees AI as benefiting the business in several ways. More AI workloads mean more cloud usage, which creates more activity for Datadog’s existing products. At the same time, AI applications introduce new things companies need to track, from GPUs and LLMs to autonomous agents and the tools those agents use.
That is already showing up in customer activity. More than 750 AI-focused customers were using Datadog in the second quarter, including major companies building their own AI infrastructure. Management also said activity from AI agents is growing rapidly, with MCP tool calls increasing more than 22-fold from the end of 2025.
But perhaps the more encouraging trend is what is happening outside AI. Revenue growth among Datadog’s broader customer base, excluding AI customers, accelerated to the high-20% range in the second quarter, up from 18% a year earlier. That suggests customers are spending more on cloud and modern software infrastructure even without an AI-related boost.
Datadog is becoming harder to leave
The other trend worth watching is how much more of the platform customers are using.
Datadog, Inc. started with infrastructure monitoring, but it now offers more than 20 products spanning observability, security, cloud costs, and application management. About 85% of customers were using at least two products by June, while 37% were using six or more.
That matters because Datadog doesn’t necessarily need to win an entirely new customer every time it wants to grow. It can expand within an existing account.
Management gave a good example: one large media customer signed a multiyear deal worth more than $30 million after choosing Datadog across its business and replacing four commercial and internal tools. The customer was using 19 Datadog products.
That kind of expansion could become increasingly important as companies try to simplify their software stacks.
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The valuation leaves little room for disappointment
The market clearly sees the opportunity. Datadog’s shares have risen sharply, and the stock was trading at roughly 84.8x forward earnings after surging more than 75% since May. Analysts expect adjusted EPS to grow about 23% in 2026, according to current consensus estimates.
The company needs to keep doing two things at once: grow revenue quickly and show that more of that growth can eventually translate into durable profits.
Conclusion
Datadog’s platform appears well positioned to keep growing as companies adopt AI and manage increasingly complicated software environments. The encouraging part is that the opportunity isn’t dependent entirely on AI. Existing customers are expanding their use of Datadog, non-AI demand is accelerating, and new AI workloads are opening additional areas for the company to serve.
The biggest concern is the price. At around 85x forward earnings, Datadog already has a lot of growth baked into the stock. The business has plenty of room to grow, but it will need to keep winning customers, expanding within existing accounts, and turning that growth into higher profits to make that valuation look reasonable.
Market Sentiment
Market sentiment toward Datadog strengthened in Insider Monkey’s database. The number of hedge funds holding the stock increased from 80 at the end of Q1 to 92 at the end of Q2 2026, while the total value of their positions jumped from about $2.54 billion to $3.94 billion over the same period.
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This article is originally published at Insider Monkey.
