What Happened?

Shares of cloud monitoring software company Datadog (NASDAQ: DDOG) jumped 3.4% in the afternoon session after the second quarter (2025) earnings season got off to a strong start. 

Quarterly earnings reports released during the week exceeded Wall Street's expectations, fueling investor confidence. Around 50 S&P 500 components reported, with 88% of those exceeding analysts' expectations, FactSet data revealed. Investors were also encouraged by several positive reports that painted a picture of a resilient consumer. One key report revealed that shoppers increased their spending at U.S. retailers more than economists had anticipated. Precisely, retail sales increased 0.6% from May, surpassing the 0.2% estimate. This robust consumer spending is a crucial pillar supporting the economy. 

Adding to the positive sentiment, the latest data on unemployment claims showed a decrease in the number of workers applying for benefits, signaling that layoffs remain limited and the job market is steady. This combination of strong earnings reports, retail sales, and a solid labor market suggests the economy is navigating challenges successfully.

After the initial pop the shares cooled down to $143.21, up 2.8% from previous close.

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What Is The Market Telling Us

Datadog’s shares are quite volatile and have had 16 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 9 days ago when the stock dropped 4.2% on the news that Guggenheim downgraded the company to Sell from Neutral, citing risks related to its largest customer, OpenAI. 

The investment firm set a price target of $105, which is significantly lower than its recent trading levels. Guggenheim analyst Howard Ma noted that OpenAI may be transitioning away from Datadog's services, particularly for log management, in favor of its own in-house solutions. This potential shift poses a revenue risk for Datadog in the second half of the year, especially in the fourth quarter. Ma estimates that optimizations by OpenAI could create a revenue gap of $150 million or more for Datadog in 2026. The downgrade comes just a day before Datadog is set to be added to the S&P 500 index.

Datadog is down 0.3% since the beginning of the year, and at $143.21 per share, it is trading 15.1% below its 52-week high of $168.65 from December 2024. Investors who bought $1,000 worth of Datadog’s shares 5 years ago would now be looking at an investment worth $1,640.

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