Datadog Before Q2 Earnings: Should You Buy, Sell or Hold the Stock?

The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $1.08 billion, suggesting 30.62% growth from the year-ago period.

Non-GAAP EPS is expected in the range of 57-59 cents. The Zacks Consensus Estimate for earnings has remained unchanged at 58 cents per share over the past 30 days, indicating an increase of 26.09% from the year-ago period.

Image Source: Zacks Investment Research

DDOG’s Earnings Surprise History

In the last reported quarter, Datadog delivered an earnings surprise of 20%. Datadog’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 15.42%.

Earnings Whispers for DDOG

Our proven model predicts an earnings beat for Datadog this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Datadog has an Earnings ESP of +2.92% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors to Consider

Datadog enters its second-quarter fiscal 2026 print riding meaningful momentum after a standout first quarter, where revenues reached $1,006 million, up 32% year over year, alongside a non-GAAP operating margin of 22% and free cash flow of $289 million. 

Product velocity stands out as a key driver. In April, the company made Datadog Experiments generally available, giving engineering teams a way to connect product changes directly to business outcomes, while GPU Monitoring launched later that month to help businesses track spend and performance as AI workloads scale. These releases build on the broader AI observability narrative that management highlighted as a genuine secular growth driver following the first-quarter results.

May brought further validation of platform durability. Datadog for Government achieved FedRAMP High certification, widening its addressable base among public-sector and regulated customers, a segment where security clearances often gate large, multiyear contracts. The company also presented at an investor conference mid-month, reinforcing visibility into demand trends across both AI-native and traditional customer cohorts, which management described as growing in tandem during the first quarter.

At its DASH user conference in June, Datadog unveiled more than 100 new capabilities spanning autonomy and security-complexity management, an event the company had flagged in its first-quarter release as a showcase for its latest innovations. Late in the month, Datadog acquired Adaptive ML, a startup building what the company describes as the first Reinforcement Learning Operations platform, adding to Datadog AI Research's work on world models and agentic large language model post-training.

Even so, a few headwinds merit consideration. Integrating an AI research-stage acquisition carries near-term cost and execution risk, and the steady pace of new capability rollouts raises the bar for adoption and monetization. Elevated R&D investment, which has exceeded $1 billion annually, may also pressure margins even as the top line expands. 

Datadog operates in a competitive observability and monitoring market, facing rivals, such as New Relic, Dynatrace DT and Splunk. While Datadog has differentiated itself through its unified platform and multi-cloud integrations, its competitors also offer robust solutions and have established customer bases. Additionally, tech giants like Microsoft MSFT and Amazon AMZN have their monitoring tools, potentially posing a threat to Datadog's market share.

Still, with record large-customer growth, robust cash generation and an active innovation cadence heading into the quarter, Datadog appears well-positioned to meet or exceed its guided second-quarter targets.

DDOG Price Performance & Stock Valuation

Datadog shares have surged 105.5% year to date, comfortably outpacing the Zacks Computer and Technology sector's 14.7% growth and the Zacks Internet Software industry's 7.9% decline.

The rally reflects growing investor confidence in Datadog's role as a core observability and security platform for enterprises navigating increasingly complex, AI-driven infrastructure.

DDOG Outperforms Sector, Peers YTD

Image Source: Zacks Investment Research

Datadog carries a Zacks Value Score of F, trading at a forward 12-month price-to-sales ratio of 20.06X, well above the industry median of 3.88X. That steep premium reflects Datadog's notably stronger growth profile relative to slower-growing peers, whose more modest multiples mirror decelerating or largely flat expansion.

DDOG’s P/S Valuation

Image Source: Zacks Investment Research

Investment Thesis

Datadog heads into second-quarter fiscal 2026 results with strong momentum, having delivered 32% year-over-year revenue growth, a 22% non-GAAP operating margin, and record large-customer additions in the first quarter. Management guided second-quarter revenues to $1.07-$1.08 billion, and recent developments, including GPU Monitoring, FedRAMP High certification, a 100-plus capability rollout at DASH, and the Adaptive ML acquisition, reinforce durable AI-driven platform expansion. While the stock trades at a premium and faces stiff competition from established and emerging observability players, Datadog's broadening product suite, healthy cash generation and accelerating enterprise AI adoption support a constructive risk-reward. Investors seeking exposure to durable, innovation-led growth may consider buying shares ahead of the print.

Final Thought

Heading into second-quarter fiscal 2026 results, Datadog's broad-based revenue growth, healthy margins and steady innovation cadence, spanning GPU Monitoring, FedRAMP High certification, DASH product launches, and the Adaptive ML acquisition, underscore durable momentum in AI-driven observability and security demand. Despite premium valuation and competitive pressure, strong customer additions and robust cash generation support continued execution. Investors comfortable with near-term volatility may find the current setup an attractive entry point ahead of the print.

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research