A 31% Thursday stock jump rewarded Datadog $DDOG investors after the cloud monitoring firm blew past Wall Street expectations in the first quarter, with revenue topping $1 billion for the first time and new contracts with AI research divisions at two of the world's biggest technology companies driving the beat.
Revenue reached $1.01 billion in the quarter, up 32% from a year earlier, the company said. On a non-GAAP basis, the company earned $0.60 per diluted share, topping the consensus estimate of $0.51, while the $931.8 million revenue target set by analysts also fell well short of what Datadog delivered, according to SiliconAngle.
CEO Olivier Pomel said on the earnings call that Datadog recently signed deals with the AI research divisions of two of the world's largest technology firms, worth seven figures and eight figures, respectively, according to CNBC. Among the new customers Pomel cited were hyperscalers, hedge funds, banks, and agencies within the federal government.
For the full year, Datadog now expects revenue of $4.30 billion to $4.34 billion, a meaningful step up from the $4.06 billion to $4.10 billion it had previously projected; non-GAAP earnings guidance moved to $2.36 to $2.44 per share from an earlier range of $2.08 to $2.16.
Second-quarter guidance calls for revenue of $1.07 billion to $1.08 billion and non-GAAP earnings of $0.57 to $0.59 per share, both above what analysts were modeling at $994.4 million and $0.50 per share, respectively, according to SiliconAngle.
The company's customer base continued to grow. As of March 31, Datadog had about 4,550 customers with annual recurring revenue of $100,000 or more, up 21% from about 3,770 a year earlier, the company said. Operating cash flow was $335 million, with free cash flow of $289 million.
Datadog sells monitoring tools that allow companies to track the health of their cloud infrastructure, applications, and security systems. AI's expansion has become a tailwind for the business, since the data-intensive demands of model training and inference push infrastructure complexity higher, multiplying the points of failure that customers need to watch, according to SiliconAngle. "There is no change to our overall view that digital transformation and cloud migration are long-term secular growth drivers for our business," Pomel said in a statement. "But we now have an additional secular growth driver with AI as we help our customers deliver more value with this transformative new technology."
The rally spread across the software sector, with Snowflake $SNOW and MongoDB $MDB climbing more than 10% and Dynatrace and Elastic each posting gains of roughly 5%.
Datadog's performance adds to a run of strong earnings from software companies navigating investor concerns that AI could erode demand for traditional enterprise software. Investors have been watching closely for signs that software firms can articulate a clear path to monetizing AI — a test Datadog appeared to pass on Thursday.