Guggenheim Downgrades Datadog to Sell, Stock Falls 4%
Summary
Guggenheim has downgraded Datadog (DDOG) to 'Sell' with a $105 price target, citing significant risk from the potential departure of OpenAI, believed to be Datadog's largest customer. OpenAI is reportedly shifting to in-house observability solutions, which could create a $150 million revenue gap for Datadog in 2026 and reduce its growth by up to 5 percentage points. Datadog's stock fell over 4% following the news, as Guggenheim's revised 2026 revenue growth forecast of 15% falls well below consensus.
Guggenheim Downgrades Datadog to Sell Amid OpenAI Customer Risk
NEW YORK, NY – Guggenheim has downgraded Datadog (NASDAQ:DDOG) from a 'Neutral' to a 'Sell' rating, setting a new price target of $105. This significant revision comes amidst growing concerns over the potential departure of OpenAI, widely believed to be Datadog's largest customer. Following the downgrade, Datadog's shares experienced a notable decline, dropping over 4% during intra-day trading today.
Key Concerns: OpenAI's Shift to In-House Solutions
Guggenheim analysts highlighted that OpenAI appears to be transitioning towards more cost-efficient, in-house observability solutions. This strategic shift could lead to OpenAI phasing out its reliance on key Datadog functionalities, including log management, metrics, and traces. Such a move, if fully realized, is projected to have a substantial impact on Datadog's revenue, particularly in the latter half of the year, with Q4 being especially vulnerable.
Under a downside scenario, Guggenheim's models anticipate Datadog's Q4 growth to slow to just 17%.
Near-Term Strength vs. Long-Term Headwinds
While Datadog is still expected to report a robust second quarter, potentially maintaining flat quarter-over-quarter growth around 25%, the firm believes the more significant challenges lie ahead. The potential loss of OpenAI's business is identified as a major customer-specific headwind that could create an estimated $150 million revenue gap in 2026. This shortfall alone could slice off up to 5 percentage points from Datadog's projected growth.
Skepticism on Offsetting Growth
Despite the possibility of accelerated growth from other AI-native or core customers, Guggenheim remains skeptical that these gains will be sufficient to offset the timing and magnitude of the OpenAI transition. This skepticism is further amplified by the current environment of tight IT budgets, which could limit new customer acquisition or expansion opportunities.
Consequently, Guggenheim has revised its 2026 revenue growth forecast for Datadog down to a mere 15%. This revised projection stands notably below the consensus expectations of 19%, signaling a more cautious outlook for the company's future performance.