Datadog shares surged approximately 15% on Tuesday, marking one of the cloud monitoring firm's most significant single-day gains in recent months following better-than-anticipated quarterly results. The stock closed at $130.86, up 14.8%.
Earnings Beat and Outlook
The company reported fourth-quarter revenue of $953.2 million, a 29% increase from the same period last year, alongside adjusted earnings of 59 cents per share. Both figures surpassed Wall Street projections. For the full year, Datadog provided guidance of $4.06 billion to $4.10 billion in revenue and non-GAAP earnings between $2.08 and $2.16 per share. The company ended 2025 with $4.47 billion in cash and marketable securities.
AI Disruption Weighs on Software Sector
The rally occurred against a backdrop of ongoing volatility in the software sector, where investor anxiety persists regarding the potential for new artificial intelligence tools to disrupt established business models. The S&P 500 software index advanced 1.3% on the day. Analysts note the market has been pricing in severe AI disruption scenarios, though some strategists argue the recent valuation gap is sentiment-driven rather than fundamental.
CEO Olivier Pomel highlighted the company's delivery of over 400 new features during 2025 and emphasized Datadog's positioning to help clients manage increased data complexity driven by generative AI adoption.
Economic Context and Competitive Landscape
Beyond technology, economic data showed flat U.S. retail sales for December, with Treasury yields declining as markets anticipate potential Federal Reserve rate cuts later this year. Datadog faces competitive pressure from rivals including Dynatrace, Cisco's Splunk, and Snowflake. The stock had declined roughly 16% year-to-date prior to Tuesday's rebound, underscoring the sector's sensitivity to shifts in corporate IT spending and AI-related sentiment.
The company has scheduled an investor day for February 12 in New York, which will serve as the next potential catalyst for the stock.
