Datadog’s Q2 wasn’t just a beat—it was a depth story: AI and security pull customers deeper into the platform

Datadog reported second‑quarter 2025 results on August 7, posting 28% year‑over‑year revenue growth to $827 million, raising full‑year guidance, and detailing a flurry of product launches aimed squarely at AI and security. The headline numbers explain why the stock jumped after-hours, but the more important signal is qualitative: big customers are adopting more of the platform, and management is spending to widen that moat. Notably, the company released its results the morning of August 7 (7:00 a.m. Eastern), underscoring that this read comes just hours after the print. (globenewswire.com, reuters.com)

The quarter’s through‑line is consolidation. Datadog ended Q2 with about 3,850 customers spending at least $100,000 in ARR (up from ~3,390 a year ago) and lifted both Q3 and full‑year outlooks. Those large customers remain the engine, contributing the vast majority of ARR. Revenue guidance for Q3 is $847–$851 million, and full‑year revenue is now pegged at $3.312–$3.322 billion. (globenewswire.com, investors.datadoghq.com)

Beyond revenue, Datadog’s most revealing KPI is how many modules a customer runs. At quarter‑end, 83% of customers used two or more products, 52% used four or more, 29% used six or more, and 14% used eight or more—each tier (except the 2+ cohort) up year over year. That pattern—more products per logo—tends to drive stickier deployments and higher net expansion over time. (benzinga.com)

Total customers reached roughly 31,400, up from about 28,700 a year earlier, with approximately 150 of those arriving via recently closed acquisitions. Datadog bought Metaplane (data observability) in April and Eppo (experimentation and feature flags) in May, extending its footprint from infrastructure and apps into data quality and product analytics—logical adjacencies that create new cross‑sell lanes. (benzinga.com, investors.datadoghq.com)

Management said the security suite has now surpassed $100 million in ARR and is growing in the mid‑40s percent range. That’s material—and culturally consistent with what the company is selling: a single platform that lets engineering, ops and security teams see the same telemetry and act on it. Consolidation anecdotes on the call—customers replacing dozens of tools and expanding to 19–21 Datadog products—illustrate why security can be an upsell rather than a separate buying motion. (benzinga.com)

The AI angle is getting sharper. At its DASH 2025 conference, Datadog unveiled more than 125 innovations, including Bits AI agents (for SREs, developers and security analysts), AI Agent Monitoring, and LLM Observability additions such as Experiments and an Agents Console—features designed to test, govern and troubleshoot AI systems in production. The company also highlighted cost‑sensitive logging updates like Archive Search and the new Flex Frozen tier, plus options aimed at regulated environments, including CloudPrem. (globenewswire.com, datadoghq.com)

Datadog is even publishing foundational research. It introduced Toto, an open‑weights time‑series model trained on observability data, and BOOM, a benchmark for observability‑centric time series—small pieces of a broader thesis that first‑party telemetry can power differentiated AI. (stocktitan.net)

On the call, executives said usage growth from existing customers ran ahead of expectations, churn remained low, and gross revenue retention sat in the “mid‑ to high‑90s.” They also emphasized that eight of the top ten “AI leaders” are customers and that the AI‑native cohort includes hundreds of logos, with more than a dozen spending over $1 million annually. It’s a reminder that AI isn’t just a product category for Datadog—it is becoming a distribution vector. (benzinga.com)

Still, guidance stayed grounded in recent trends and built‑in conservatism. Q3 revenue is guided to $847–$851 million, with a 21% non‑GAAP operating margin; for the full year, management now expects $3.312–$3.322 billion of revenue and a similar margin profile. The stock’s initial double‑digit move reflected that upside versus consensus. (investors.datadoghq.com, reuters.com)

Non‑GAAP operating margin came in at 20%, down sequentially as the company leaned into hiring and spent $13 million on its user conference; FX was an additional $6 million headwind. Excluding those items, operating margin would have been about 22%. In plain English: Datadog chose to invest while still delivering strong profitability. (investing.com)

Cash generation stayed healthy at $200 million of operating cash flow and $165 million of free cash flow (a 20% margin). On a SaaS “Rule of 40” lens—28% growth plus ~20% non‑GAAP operating margin—the quarter prints around 48, a level consistent with durable compounders. (globenewswire.com)

Index inclusion and credentials help at the margin. Datadog joined the S&P 500 effective July 9, broadening its natural shareholder base. And it was named a Leader in Gartner’s 2025 Magic Quadrant for Observability Platforms for the fifth straight year—external validation of the platform’s breadth and pace. (press.spglobal.com, datadoghq.com)

Go‑to‑market reach is expanding as well. Management called out progress toward FedRAMP High authorization (a gateway to U.S. federal workloads) and launched its full product range in AWS’s Sydney region—both moves that enlarge the company’s addressable market in regulated industries and new geographies. (investors.datadoghq.com)

Datadog remains a usage‑based business. If customers optimize cloud and logging volumes—especially as AI workloads get tuned for cost—expansion can wobble quarter to quarter. Management’s conservative guide philosophy acknowledges that. Keep an eye on the share of customers using six or more and eight or more products; these are the best early indicators of durable net expansion.

Competition is not standing still. Hyperscalers are bundling more telemetry into their clouds, Cisco is integrating Splunk, and some large AI players are reportedly building their own observability tooling—OpenAI’s internal efforts, for instance, have been a recurring investor question. The flip side is that Datadog’s consolidation wins suggest buyers increasingly prefer a unified plane for observability and security. (investors.com, benzinga.com)

Finally, integration risk is real: the value from Metaplane and Eppo must show up as faster time‑to‑value for data teams and product organizations, not just as logos. Early signs are encouraging given the cross‑sell logic, but execution over the next few quarters will matter. (investors.datadoghq.com)

This was a quality beat, but more importantly, it was a depth quarter. Security crossing the $100 million ARR mark, AI‑native customers scaling up, and multi‑product adoption rising all point to a platform that’s doing more of the mission‑critical work inside its customers. With a Rule‑of‑40 print near 50 and fresh guidance that tops expectations, Datadog is spending into strength—an approach that could pay off if the product depth trend continues. Watch large‑customer growth, 6+ and 8+ product adoption, and security ARR growth as the best tells for the next leg of the story. (benzinga.com, globenewswire.com, reuters.com)