Datadog Jumps 5% as Bernstein Upgrade Cites AI Demand; Snowflake Rises 3%, Cloudflare Holds Steady
Bernstein just reversed its Datadog call one quarter after a downgrade shook the stock, pointing to AI token consumption as the reason. Whether that optimism survives the November earnings report is the question every investor in the space should be…
Signs of accelerating AI workloads are pulling cloud software back into favor after a rough stretch for technology names. Datadog (NASDAQ:DDOG | DDOG Price Prediction) stock is up 5% to $259.15 in morning trading, leading the group higher.
Bernstein upgraded Datadog stock to Outperform from Market Perform, stating that its data show enterprise AI token consumption at the largest AI labs growing rapidly quarter over quarter. The new rating rests on the conclusion that the earlier view of Datadog’s AI-driven growth was too conservative, a reversal that comes one quarter after a downgrade tied to a revenue cut at Datadog’s largest AI-native customer and slower demand among established clients.
A broad selloff in technology stocks the prior week sets the background for the upgrade. Observability software from Datadog tracks how applications and cloud infrastructure perform, so more AI tokens moving through customer systems could translate into more activity for the company to monitor and bill.
Second-Quarter Results Back the AI Case
Second-quarter 2026 results already gave Datadog’s AI story a solid base. The company posted revenue of $1.12 billion, up 35.6% from a year earlier, and non-GAAP earnings per share (EPS) of $0.65, beating expectations. That marked Datadog’s fifth consecutive EPS beat.
Datadog’s larger accounts kept expanding as well, with customers paying $100,000 or more in annual recurring revenue up 23% to approximately 4,720. Growth in that tier picked up from 21% in the first quarter of 2026.
Management raised Datadog’s full-year 2026 revenue guidance to between $4.45 billion and $4.47 billion after that report. Chief executive Olivier Pomel tied the momentum to AI. He made the point in the August release, stating, “Our customers are building and deploying with AI, and they are using the Datadog platform to observe, secure, and act on their AI-enabled solutions.”
Datadog Builds Tools for AI Workloads
Datadog has been shipping products aimed directly at AI customers, including Bits AI for autonomous incident detection and resolution, AI Guard for protecting AI agents, and Bits Agent Builder for creating custom agents. The company launched more than 100 new capabilities at its DASH 2026 conference, including a Bring Your Own Cloud model that runs Datadog inside customer environments. It also acquired Adaptive ML to speed up its AI research.
That product push came alongside better profitability, with Datadog’s non-GAAP operating margin expanding to 23% from 20% a year earlier. Its free cash flow margin reached 25% in the quarter.
Snowflake and Cloudflare Trail the Leader
Checking in on the peers, Snowflake (NYSE:SNOW) stock is up 3%, a solid gain that still trails the jump in Datadog stock. Cloudflare (NYSE:NET) stock is up 0.4% to $297.58, lagging both Datadog stock and Snowflake stock. Snowflake sells a cloud data platform, while Cloudflare runs a network for security and content delivery.
Sector-wide gains are more modest, as the WisdomTree Cloud Computing Fund (NASDAQ:WCLD) is up 0.8%. Broader tech is running ahead of cloud software, as the Invesco QQQ Trust (NASDAQ:QQQ) is up 1%. That gap leaves the jump in Datadog stock looking like a company-specific reaction to the upgrade.
Bernstein Upgrade Sets Up Datadog’s November Report
Datadog is scheduled to report third-quarter 2026 results in early November, with its guidance calling for revenue of $1.135 billion to $1.145 billion. Datadog’s report needs to show AI-native customers spending more, since the upgrade rests on AI workload growth. Another focus is whether established customers also step up their spending after the slower demand behind last quarter’s downgrade.
Last quarter’s downgrade is a reminder that Datadog’s growth depends partly on its largest AI-native customer. When all is said and done, investors should keep their Datadog stock positions moderate. A second revenue cut could undo the optimism behind the new rating, and the prior week’s tech selloff showed how quickly sentiment can turn.
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David Moadel is financial writer specializing in stocks, ETFs, options, precious metals, and Bitcoin. David has written well over 1,000 articles for leading online publications, helping investors understand markets, income strategies, and risk.His work has appeared in The Motley Fool, InvestorPlace, U.S. News & World Report, TipRanks, ValueWalk, Benzinga, Market Realist, TalkMarkets, Finmasters, 24/7 Wall St., and others.With a master’s degree in education, David has taught at the elementary, high school, and college levels. That teaching background shapes his writing style: clear, educational, and practical. David has also built a loyal social-media audience by providing trustworthy financial content on YouTube, X/Twitter, and StockTwits.
