Datadog's Crossroads: Why Growth Challenges Signal a Shift to AI Infrastructure Plays

The upcoming earnings report for Datadog (DDOG) on August 7, 2025, arrives under a cloud of uncertainty. Despite its strong Q1 2025 results—25% revenue growth to $762 million—the stock's post-earnings volatility and slowing growth projections raise critical questions about its long-term sustainability. Meanwhile, a growing dependency on key customers like OpenAI, coupled with signs of in-house development by that critical client, threatens to upend Datadog's trajectory. Investors should take heed: the path forward for DDOG may now lie in rotating into undervalued infrastructure plays better positioned to capitalize on AI's energy demands.

The Datadog Dilemma: Valuation vs. Reality

Datadog's stock trades at a forward P/E of 300, reflecting sky-high expectations for sustained growth. Yet the reality is far murkier. The company's 2025 revenue guidance of $3.175–3.195 billion implies a slowdown to just 18–19% growth, down from 26% in 2024. Even more concerning: non-GAAP EPS is projected to fall to $1.67–1.71, a sharp drop from 2024's $1.82.

This slowdown isn't merely cyclical. A key vulnerability lies in its reliance on OpenAI, its largest client. Guggenheim Securities recently warned that OpenAI is migrating away from Datadog's log management and observability tools, aiming to build internal systems. If realized, this could slash Datadog's revenue by $150 million by 2026, gutting its growth rate.

The OpenAI Factor: Dependency as a Double-Edged Sword

OpenAI's pivot to in-house infrastructure—driven by frameworks like Rapid and Rcall—reflects a broader trend among AI-native firms. These companies are prioritizing control over their technical stacks, reducing reliance on third-party vendors like Datadog. The risks here are twofold:
1. Immediate Revenue Pressure: OpenAI's departure could strip DDOG of a critical revenue stream, compounding margin pressures from rising R&D costs.
2. Structural Challenges: As AI firms scale, they may replicate Datadog's core offerings, eroding the company's differentiation.

Analysts now question whether smaller customers can offset this loss, especially as businesses tighten cloud budgets. Even if Q2 2025 results meet expectations ($787–791 million revenue), the market's focus will shift to guidance for 2026.

The Contrarian Play: AI Infrastructure's Undervalued Gems

While Datadog grapples with these headwinds, a clearer opportunity emerges in energy infrastructure stocks poised to benefit from AI's insatiable energy appetite. Two names stand out:

Plains All American Pipeline (PAA)

PAA operates 19,000 miles of pipelines and 130 million barrels of storage, serving data centers and refineries in critical regions like the Permian Basin. Its $2.87 billion in 2024 free cash flow and 90% fee-based revenue structure provide stability, while its exposure to LNG exports and grid modernization projects align with AI's energy needs.

Why buy now? PAA trades at 46.7% below its intrinsic value, offering a 5.7% FCF margin and a tailwind from the Inflation Reduction Act's grid investments.

Tenaris S.A. (TS)

TS's dominance in specialized steel pipes for oil and gas projects positions it as a critical supplier to renewables and nuclear infrastructure. Its $2.09 billion in 2024 FCF and 6.2% margin highlight resilience, while its pivot to wind tower pipes and small modular reactors (SMRs) ties directly to AI's energy demands.

Why TS? Trading at a 13% discount to intrinsic value, TS benefits from geopolitical shifts (e.g., EU's reduced reliance on Russian gas) and U.S. semiconductor/data center buildouts.

The Case for Rotation: DDOG vs. Infrastructure

The calculus is clear: Datadog's valuation demands flawless execution in a crowded market, while infrastructure plays like PAA and TS offer stable cash flows and geopolitical tailwinds at a fraction of the risk.

• DDOG's Risks: OpenAI's departure, margin pressures, and slowing growth could push the stock below its $100 handle if guidance weakens.
• PAA/TS's Upside: Both leverage secular trends (renewables, grid modernization) and trade at discounts to intrinsic value. Their FCF margins (5.7% and 6.2%) outperform Datadog's 19% operating margin target.

Final Take: Exit DDOG, Embrace the Infrastructure Shift

The writing is on the wall for Datadog: its valuation assumes perfection, but structural risks loom. Meanwhile, energy infrastructure stocks like PAA and TS offer a safer, higher-conviction path to growth. Investors should consider:
1. Trim DDOG exposure ahead of August's earnings, especially if OpenAI's migration accelerates.
2. Allocate to PAA/TS, capitalizing on their undervalued status and alignment with AI's energy needs.

The AI revolution isn't just about software—it's about the energy and infrastructure enabling it. The next phase of growth lies beneath the surface.

Final Recommendation: Rotate out of DDOG into PAA and TS for better risk-adjusted returns.