Citi Recommends Buying the Dip on Datadog as AI-Native Customer Growth Nears 97%
Miles Bennett
Datadog dropped over 19% after hours post-earnings, but Citi issued a buy call immediately, arguing that 36% year-over-year revenue growth and ~97% AI-native customer growth remain intact — the selloff traces to one large customer cutting spend on renewal, not a broken growth story.
How did the quarter actually look?
Datadog's June quarter revenue hit $1.12 billion, up 36% year over year — roughly $45 million above the company's own prior guidance.
Management also raised full-year revenue guidance by about $140 million. This means → the raise exceeds the single-quarter beat, signaling confidence in the back half.
Citi described the result as "commendable execution against high/raised expectations, with accelerating revenue profitability."
AI customers vs. non-AI — who is driving the growth?
AI-native customers — companies whose core business is built around AI models — grew revenue roughly 97% year over year, nearly doubling.
Non-AI-native customers grew about 28%, slower but still a healthy double-digit clip.
In plain terms = growth is not a one-leg AI story; traditional cloud customers are paying steadily too — Citi calls it "broad and balanced strength."
So why did the stock drop 19%?
The trigger was forward guidance: CEO Olivier Pomel disclosed that the company's largest customer cut spend upon contract renewal this quarter.
As a result, current-quarter revenue guidance landed at roughly $1.14 billion, implying about 29% year-over-year growth — down from the prior quarter's 36%.
This means → the market's worry is not the past scorecard but whether the deceleration trend can be contained — one customer's pullback shaved 7 percentage points off the growth rate.
Is the large-customer pullback an outlier or a trend?
Pomel declined to name the customer and said that under a usage-based billing model, clients seeking to lower their bills is "normal."
Citi's view: this is an isolated case that does not change the overall growth thesis — hence the buy-the-dip call.
The real unresolved question is whether other top customers follow suit. Next quarter's earnings will be the proving ground for this debate.
Large-customer pullback — buying opportunity or growth inflection?
BULL
Fundamentals intact
Revenue grew 36% above expectations; AI and non-AI cohorts both validated.
Outlier, not trend
Citi sees one customer's cut as isolated — the dip is the opportunity.
BEAR
Growth stepping down
Guidance growth dropped from 36% to 29% — one client moved it 7 points.
Contagion risk
Usage-based billing gives every large customer the same incentive to cut.
In plain terms = Citi is betting 'one customer's problem is not every customer's problem.' The market is betting the opposite — next quarter settles it.
Content is for reference only, not financial advice.