Cloud monitoring platform Datadog (NASDAQ: DDOG) reported Q3 2026 results topping the market’s revenue expectations, with sales up 35.2% year on year to $1.20 billion. The company expects next quarter’s revenue to be around $1.20 billion, close to analysts’ estimates. Its non-GAAP profit of $0.81 per share was 26.4% above analysts’ consensus estimates.

Is now the time to buy DDOG? Find out in our full research report (it’s free for active Edge members).

StockStory’s take

Datadog's third quarter results surpassed Wall Street’s expectations for both revenue and non-GAAP profitability, but the market responded negatively as investors focused on the implications of early large-customer renewals and shifting growth dynamics. CEO Olivier Pomel noted that, while Datadog saw “continued acceleration of the non-AI customer base” and robust product adoption, some major AI-native customers renewed contracts earlier than anticipated, leading to short-term revenue headwinds due to better pricing. Management also highlighted strong adoption of the Bits AI product and ongoing momentum in multi-product usage across both large enterprises and emerging startups.

Looking ahead, management’s guidance reflects caution around the timing and impact of early renewals among Datadog’s largest and fastest-growing AI-native customers. CFO David Obstler explained that revenue projections for the next quarter are based on minimum contractual commitments, acknowledging that actual customer usage could exceed these levels but remains unpredictable. The company is emphasizing investments in AI-driven product innovation and sales capacity, with Pomel stating, “We continue to invest to capture our long-term opportunity in the cloud and in AI,” while also recognizing the potential for further volatility as usage patterns evolve and customer optimization efforts play out.

Key insights from management’s remarks

Management attributed third quarter performance to ongoing enterprise cloud adoption, rapid AI product uptake, and increased multi-product penetration, but noted that early renewals from large customers tempered near-term revenue growth.

• AI-native customer renewals: Several large AI-native customers renewed contracts ahead of schedule, securing better pricing but causing short-term revenue headwinds as contract volumes shifted to lower unit prices. Management expects these effects to moderate in future periods as the cohort diversifies and stabilizes.
• Bits AI adoption: The Bits AI product, designed to automate investigation and troubleshooting tasks, experienced the fastest uptake of any Datadog launch. Management revamped its pricing to an AI credits model, which Pomel described as better matching customer usage patterns and supporting broader adoption for automation workflows.
• Multi-product expansion: Over 60% of Datadog customers now use four or more products, up significantly from last year. This trend was driven by both organic adoption and the ability to consolidate legacy tools, with notable wins in regulated industries like government and healthcare.
• Cloud and AI platform strategy: Datadog continued to expand its “Datadog for AI” offering, integrating AI observability and security products to address enterprise demand for performance, security, and cost control. This includes new features in GPU monitoring, agent observability, and AI-specific cost management.
• Government and large enterprise traction: Major deals included a U.S. federal defense agency and two of Japan’s largest banks, reflecting Datadog’s progress in government certification (FedRAMP High) and its ability to land sizable, multi-product agreements in traditionally conservative sectors.

Drivers of future performance

Datadog’s outlook for the coming quarters is shaped by AI-driven customer expansion, the timing of early renewals, and ongoing investment in new product capabilities.

• AI customer cohort broadening: Management pointed to expanding adoption among both AI-native and traditional enterprise customers, with over 850 AI customers now on the platform. As more organizations embed AI into their operations, Datadog expects this trend to drive long-term growth, though short-term revenue can be volatile due to usage-based pricing and renewal cycles.
• Product innovation and automation: The company is investing heavily in R&D, particularly in AI for both internal platform automation (such as Bits AI and Scout) and customer-facing observability features. Management believes that these capabilities will improve customer retention and create new upsell opportunities as organizations seek to manage the complexity of AI workloads.
• Contract renewal dynamics: Early renewals at higher commitments but lower unit prices have introduced near-term revenue headwinds, especially among the largest customers. Management expects these effects to smooth out as the customer base grows and the mix of deal timing normalizes, but acknowledged continued unpredictability around large customer consumption patterns.

Catalysts in upcoming quarters

In future quarters, our team will be watching (1) the pace at which early-renewed large customers ramp usage above their minimum commitments, (2) continued adoption of Bits AI and other AI-driven automation features across the customer base, and (3) the traction of Datadog’s platform in new verticals such as government and regulated industries. Execution on AI cost management and observability tools will also be a key marker of success.

Datadog currently trades at $188.30, down from $220.52 just before the earnings. Is there an opportunity in the stock? Find out in our full research report (it’s free).

High quality stocks for all market conditions

ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.

Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.

Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.