Datadog's Q2 2025 Earnings Call: Unpacking Key Contradictions in AI Revenue Growth and Margin Outlook

AI native cohort revenue growth and optimization, sales capacity increase and new logo production, cloud efficiency and margin improvement, AI cohort revenue contribution, gross margin optimism are the key contradictions discussed in Datadog's latest 2025Q2 earnings call.



Strong Revenue Growth and AI Integration:
- Datadog reported record revenue of $827 million for Q2, up 28% year-over-year and above the high end of their guidance range.
- This growth was driven by strong usage demand from existing customers, particularly in the AI native cohort, and the ongoing solid demand environment with healthy cloud migration and digital transformation.

Increased Contribution from AI Native Customers:
- The AI native customers accounted for 11% of Q2 revenue, up from 8% in the previous quarter and 4% in the year-ago quarter.
- The growth in this segment was due to increased cloud consumption and the adoption of AI applications in production.

Platform Adoption and Security Milestones:
- By the end of Q2, 83% of Datadog's customers were using two or more products, with 52% using four or more products, and the security suite of products surpassed $100 million in ARR.
- The company's platform strategy resonated in the market, as customers adopted more products, including security offerings like Cloud SIEM, contributing to the increase in platform adoption and security revenue.

Improved Efficiency and Margins:
- Datadog achieved a gross margin of 80.9%, with a continued focus on cloud efficiency projects that delivered savings.
- The company saw successful internal cloud optimization efforts, which are expected to continue into the second half of the year, contributing to improved gross margins.