Datadog Inc. (DDOG) spent last summer defending itself against one accusation: that its biggest customer was quietly building its way out the door.
In July 2025, Guggenheim downgraded the stock to sell, warning that OpenAI was developing in-house monitoring tools that could carve a $150 million hole in Datadog’s revenue. The stock brushed it off and nearly doubled over the following year.
On August 6, the warning arrived anyway, delivered not by a bearish analyst but by Datadog’s own management.
The company beat second-quarter revenue and earnings estimates and raised its full-year guidance for a third straight quarter. Investors sold the stock down as much as 19% the same day, according to The Motley Fool.
Related: Datadog’s largest customer renews deal but cuts usage
The reason wasn’t the quarter that just happened. It was the one ahead of it. Datadog told investors its unnamed largest customer, widely believed by analysts to be OpenAI, would pull back usage starting in the third quarter, despite recently signing a nine-figure renewal covering 17 products, Benzinga reported.
Bank of America read the same guidance and reached a different conclusion. Analysts Koji Ikeda and George McGreehan reiterated their buy rating and $305 price objective in a note to clients that was shared with TheStreet, arguing the market is treating one account’s slowdown as a company-wide problem.
That target implies 33% upside from where the stock closed after the selloff.
The stock sold off for a reason that’s mostly already over
The scariest figure in Datadog’s guidance is a growth rate. The more useful figure is a dollar amount, and it’s the one BofA’s note focused on.
Third-quarter guidance implies roughly $19 million of new revenue beyond what the company just booked, compared with $115 million of new revenue added in the second quarter alone.
That’s close to a six-fold drop in pace within a single quarter, on paper. BofA’s read is that management built maximum caution into the number around one customer’s pullback rather than a broad slowdown.
On the third quarter guidance earnings call, CEO Olivier Pomel put it simply: the company doesn’t control what happens with a specific customer, Benzinga reported. That framing turns an alarming growth number into a bounded, known risk instead of an open-ended one.
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Datadog’s business outside its biggest customer is getting stronger
The detail overshadowed by the selloff is that growth outside Datadog’s largest account has now accelerated for four straight quarters, reaching the high-20% range, according to BofA’s note.
That trend predates this year’s AI spending surge and instead reflects customers consolidating monitoring tools onto a single platform.
Customers paying Datadog at least $100,000 a year grew 23% year over year, up from 21% growth the prior quarter, according to Datadog’s earnings release.
That acceleration came from a base of roughly 4,720 large accounts, not from one AI lab.
BofA’s view is that this breadth undercuts the bear case that Datadog is simply riding one customer’s AI spending wave. The firm called the concentration overhang de-risked rather than resolved, a distinction that matters for anyone deciding whether to buy the drop.
More BofA:
- BofA downplays China’s threat to Micron’s AI business
- Nvidia dominates AI chips, but BofA sees AMD closing in
- BofA refuses to embrace cybersecurity darling ahead of earnings
BofA’s price target didn’t move, and that’s the tell
BofA set its $305 price objective on July 22, weeks before the earnings report, according to the note’s coverage history.
The fact that Wednesday’s guidance didn’t budge that number is itself informative: the firm is signaling it had already modeled this scenario.
The target rests on a 20.6x multiple of Datadog’s expected 2027 revenue, versus roughly 5x for infrastructure software peers including MongoDB, Snowflake, and Dynatrace.
BofA justifies the premium with Datadog’s projected 19% revenue growth in 2027, against an 11% peer average. That’s a rich multiple, and it means the stock still has to earn that gap through execution, not just survive one customer’s retreat.
A single customer can now move an entire sector’s stock price
Datadog’s selloff previews a risk every AI-infrastructure vendor increasingly shares. A handful of AI labs and hyperscalers have grown large enough that their internal build decisions can swing a public company’s quarterly growth rate by double digits.
Observability, cloud data, and adjacent software vendors all carry some version of the concentration math investors just repriced into Datadog.
The next few quarters will show whether Datadog’s other 4,700-plus large customers can grow fast enough to make one account’s habits irrelevant to the stock.
If they can, this selloff becomes the buying opportunity BofA is calling it. If they can’t, Guggenheim’s year-old downgrade will look less like a bad call and more like an early one.
Related: Bank of America doubles down on Sandisk stock after earnings
