Oct 21, 2026: a software rally lifts Datadog 7.7%
Datadog was quiet before the bell. It traded at $257.07 at 8:30am and $257.99 at 9:10am, both within 0.6% of the Oct 20 close. It opened the regular session at $259.77, which turned out to be the low of the day, and climbed steadily from there: $269.30 by 9:50am, $274.03 by 10:25am, and a high of $276.98 shortly before noon. At 11:56am it was $276.20, up 7.7%, on 1.34 million shares.
What lifted it:
- The whole security and cloud group bid up. 24/7 Wall St. reported that CrowdStrike announced an expanded collaboration with Nvidia that links its newest AI threat detection tool to Nvidia's secure software and builds its controls into Nvidia hardware, aimed at stopping AI agents that act dangerously. CrowdStrike rose, but Datadog, Cloudflare, Okta and Zscaler rose more.
- The Bernstein upgrade still frames the stock. Investing.com's Oct 21 report on the move pointed back to analyst Peter Weed's Outperform call and to data showing token consumption at large AI labs up 50% from the prior quarter. For a company that bills on how much its customers run, more AI work means more to monitor.
- Targets moved up ahead of the report. Investing.com listed Mizuho raising its target to $330 from $300, RBC to $320 from $280, CIBC to $315 from $280 and Barclays to $300 from $290, all with positive ratings.
What it lacks:
- No company news. SEC EDGAR shows no Datadog filing since a Form 4 on Oct 9, and the last 8-K was the second-quarter results on Aug 6.
- Light volume. The 1.34 million shares traded by 11:56am were about half the 20-day average of 2.9 million, so the move has not yet drawn heavy buying.
From the Oct 20 close, at 11:56am:
| Stock or fund | Oct 20 close | Oct 21, 11:56am | Change |
|---|---|---|---|
| Datadog (DDOG) | $256.43 | $276.20 | +7.7% |
| Cloudflare (NET) | $291.69 | $311.56 | +6.8% |
| Okta (OKTA) | $194.02 | $206.86 | +6.6% |
| Zscaler (ZS) | $214.51 | $227.50 | +6.1% |
| CrowdStrike (CRWD) | $227.37 | $237.28 | +4.4% |
| Elastic (ESTC) | $95.63 | $99.39 | +3.9% |
| Palo Alto Networks (PANW) | $340.28 | $351.88 | +3.4% |
| iShares software ETF (IGV) | $106.93 | $109.11 | +2.0% |
| Snowflake (SNOW) | $319.61 | $325.98 | +2.0% |
| Dynatrace (DT) | $63.64 | $64.87 | +1.9% |
| Invesco QQQ (QQQ) | $717.63 | $726.30 | +1.2% |
The pattern matters. Dynatrace, the closest pure observability rival, rose only 1.9%, so this was not a vote on observability as a category. It was a rebound in the higher-growth names that sold off hardest last week. Datadog fell 7.2% on Oct 16 in a software selloff that also hit Fastly, and lost 15.7% from its Oct 9 record close of $293.26 to its Oct 16 close of $247.11. For the rest of the session's movers, see today's biggest stock moves.
At 11:56am, RSI(14) stood at 57, the shares sat 11.5% above their 50-day average and 43% above their 200-day average, volume ran 0.5 times its 20-day average, and the stock was 8% below its 52-week high of $300.68, set on Oct 12.
Why the largest customer matters
The August selloff explains why every analyst note now talks about AI usage. On Aug 6 Datadog reported second-quarter revenue of $1.12 billion, up 36% from a year earlier, with $279 million of free cash flow and about 4,720 customers paying $100,000 or more a year, up 23%. It beat estimates and raised its full-year revenue forecast to $4.45 billion to $4.47 billion. The stock still fell 19%.
The reason was one account. CFO David Obstler said on the call, "we have seen a usage reduction, which is incorporated in our Q3 and full year 2026 guidance." Datadog did not name the customer or size the cut; analysts and press reports identify it as OpenAI. The third-quarter guide of $1.135 billion to $1.145 billion implies growth of about 29%, down from 36%.
The chart shows the problem in one bar. The guidance midpoint is only about 2% above the second quarter, after sequential gains of 6% to 11% in each of the last three quarters. That is the cushion the bull case rests on: if the largest customer settles at its contractual minimum and the rest of the base keeps growing, there is room to beat. Our explainer on why guidance changes move stocks covers why the outlook, not the quarter just reported, set the August reaction.
The case for the stock
- Usage at AI labs is rising again. Bernstein's reversal is the most direct evidence. It downgraded the stock a quarter ago on the largest customer's cut, and now says its view of AI-driven growth was too conservative.
- The core business is accelerating. Management said non-AI revenue growth reached the high 20% range in the second quarter.
- A record of beats. Revenue topped the consensus in each of the last four quarters, by 3% to 5%.
- Cash and profit. Non-GAAP operating margin was 23% last quarter, and the company held $5.0 billion of cash and securities at June 30.
The risks
- Valuation. At about 93 times forward earnings, the stock prices in years of fast growth. Our guide to forward against trailing P/E explains why the forward figure is the one that matters here, and why it is still high. GAAP operating income was only $5 million last quarter, held down by stock pay.
- The bar is above guidance. The consensus of $1.146 billion revenue and $0.64 a share sits at or just above the top of the company's range.
- Customer concentration. If the largest customer cuts below its commitment, or another AI lab follows, usage-based revenue can fall fast.
- A sector-driven gain. Today's move came with the group and on light volume. The stock gave back 15.7% in five sessions after its last record.
What comes next
- Third-quarter results, November 4, before the open. Watch revenue against $1.145 billion, the fourth-quarter guide against the roughly 29% growth implied for the third, and any update on the largest customer. Our guide to preparing for an earnings report explains what tends to move a stock on the day.
- Whether the rally holds. A close back below $256 before the report would say today was a one-day sector bounce.
- AI lab usage. Any further read from analysts on token consumption at the large labs will feed straight into expectations for Datadog's usage-based revenue.