Datadog Stock Forecast: AI Customer Cuts Usage as DDOG Loses $203.55

Datadog earns revenue as customers use its software to monitor applications and infrastructure. Its largest customer reduced usage in the third quarter but still spent more than its contractual minimum. Management counted only that minimum when preparing the fourth-quarter forecast, according to the earnings call.

That leaves room for sales to beat guidance even if the customer simply keeps spending at its recent pace. It also puts a limit on what investors can infer from a beat. I would want to know whether usage actually picked up again or whether Datadog started the quarter with an especially cautious assumption.

Several large customers, including AI companies, renewed early. They agreed to larger commitments and received better pricing. For Datadog, the attraction is a larger amount of business under contract. For the customer, the lower rate makes it cheaper to send more data through the platform.

The two sides can both benefit while Datadog sees little immediate lift in sales. A customer paying less per unit has to increase usage just to produce the same revenue as before. That makes consumption after renewal a better guide to quarterly sales than the size of the new commitment alone.

Revenue from customers outside the AI group grew in the high 20% range from a year earlier, roughly a percentage point faster than in the previous quarter. Meanwhile, the number of AI customers rose from about 750 to more than 850. Of those, 39 were spending more than $1 million annually, management told analysts.

The selloff is easier to understand when those figures are read together. Datadog is winning AI customers and growing across the rest of its business, but one large account can change spending faster than dozens of smaller customers can scale up. Another quarter of faster growth outside AI would make that concentration easier to absorb.

Third-quarter revenue reached roughly $1.20 billion. Datadog earned $0.32 per diluted share under GAAP and $0.81 on an adjusted basis. Its operating margin was 6% under GAAP and 28% after adjustments. Stock-based compensation is among the costs excluded from the adjusted measure.

Management projects fourth-quarter revenue of $1.19 billion to $1.20 billion and adjusted EPS of $0.69 to $0.71. At the midpoints, its adjusted operating income guidance implies a margin near 24%, about four percentage points below the third quarter. Full-year guidance calls for $4.515 billion to $4.525 billion in revenue, according to the earnings release.

Datadog generated $290 million of operating cash flow and $251 million of free cash flow in the quarter. That gives it room to develop products such as Scout 1.0, the model behind Bits Investigation. Datadog introduced Scout on October 15 in a closed preview for investigating problems in live software, according to its product announcement.

Lower computing costs could let an engineering team investigate alerts it would otherwise set aside. The commercial test is whether customers find enough problems early to keep paying for that service. Until Datadog reports paid usage, the next quarter’s sales outlook depends more directly on consumption under existing contracts.

DDOG broke its rising daily trendline and opened the earnings session at $199.74. Buyers briefly recovered former support at $203.55 and reached $207.74. By the close at $188.72, they had given back the whole recovery and finished just $2.21 above the $186.51 session low. The failed attempt to hold $203.55 carries more weight for me than the first move below it.

The relative strength index fell to 28.66, putting DDOG in oversold territory. That makes a rebound plausible, especially after a fall of this size, but the MACD momentum indicator still points to stronger selling. I remain bearish while rallies stall below $203.55. A daily close below $186.51 would strengthen the case for a test of $166.20. Losing that support would bring $132.65 into view.

A daily close back above $203.55 would invalidate the immediate bearish setup. Buyers would then need to clear the earnings-day high before the more distant resistance zone between the 100-day exponential moving average at $240.49 and $244.07 comes into play.

DDOG Price Chart - Source: Tradingview

Key Levels

• Latest completed close: $188.72 on November 4
• Immediate resistance: $203.55
• Upside tests: $207.74, then $240.49 to $244.07
• Immediate support: $186.51
• Downside targets: $166.20, then $132.65
• Daily RSI: 28.66, oversold

Has Datadog’s largest customer already cut spending to its minimum?

It spent above the minimum in the third quarter. Datadog used the contractual floor as its fourth-quarter forecasting assumption.

What would change the bearish DDOG forecast?

A daily close above $203.55 would reclaim the support that failed on earnings day. The first upside test would be $207.74.

Faster growth outside AI gives Datadog a way to offset softer usage at its largest account. Discounted renewals make the pace of that recovery harder to judge. Below $203.55, sellers retain the advantage, with $166.20 in focus if the earnings-day low breaks.