Investing.com | Author Pratyush Thakur
Published Jul 08, 2025 09:23AM ET
Investing.com -- Guggenheim cut Datadog (NASDAQ:DDOG) rating to Sell from Neutral on a target price of $105, warning the software company could suffer a sharp revenue hit if OpenAI, which is its biggest customer, moves workloads in‑house.
The brokerage said OpenAI is building its own log‑management and metrics tools, a shift that may begin eroding Datadog’s billings in the second half of 2025.
Guggenheim sees growth at about 17% in the fourth quarter, versus its “plausible” 24.6% gain in the current quarter, and sees only 15% growth in 2026, four points below consensus.
Analysts estimate OpenAI now accounts for roughly $170 million, about 60% of Datadog’s “AI‑native” customer cohort. Should the start‑up migrate away, Guggenheim says Datadog faces “a $150 million or greater…hole to fill in 2026” as core enterprise spending remains subdued.
The brokerage still expects a strong second quarter, projecting nearly 25% revenue growth, about 200 basis points ahead of Wall Street and enough, it believes, for management to lift full‑year guidance slightly.
But any optimism could fade as OpenAI’s optimisation “creates a potential step‑function down” in the second half, it added.
Datadog has cautioned investors about volatility among AI‑focused clients, but Guggenheim argues OpenAI is an outlier whose hyperscale growth makes third‑party monitoring increasingly expensive.
It values the shares at 9.3 times its 2026 revenue forecast, versus a current multiple of 13.8, and 36 times free cash flow.
Risks to the bearish call include OpenAI maintaining current spend or faster‑than‑expected take‑up by other AI‑native and enterprise customers.
Longer term, Guggenheim still sees Datadog re‑accelerating to high‑teens growth and 25%‑plus free‑cash‑flow margins after 2027, supported by what it describes as an “impressive product portfolio and category leadership.”
Written By: Investing.com
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