Preview|DDOG 1Q26: Stable Core, OpenAI Migration Pushed Out, Bits AI Contribution Still Early
We spoke with three former / current Datadog (DDOG) sales and channel experts this quarter, and additionally collected first-hand usage feedback from a large North American enterprise customer. Overall, DDOG’s core business held up well in 1Q26, but with clear bifurcation: the AI-native cohort (including AI startups within the AWS ecosystem) grew above expectations as cloud consumption accelerated, while traditional and mid-market enterprises turned more cautious on observability spending as more of their budget was reallocated toward AI projects. Customer feedback on Bits AI was muted; enterprise customers concluded that the cost / benefit tradeoff did not yet pencil after testing, and only the AI-native cohort showed relatively positive uptake. OpenAI’s migration off DDOG is progressing somewhat more slowly than we previously assumed, with full migration now expected around 4Q26, while Anthropic’s usage continues to grow rapidly off a low base. We expect 1Q26 revenue and 2Q26 guidance to extend the trend of beating consensus by ~5–6 ppts seen in recent quarters, and view the setup heading into print as healthier given the delayed OpenAI migration gap.
1Q26 Results Update And Outlook
North America Channel Expert A
Internal 1H26 target of +22–24.5% y/y; 1Q26 came in at only ~21% y/y, below plan
Main reason for the miss: the observability industry is moving from observability 2.0 to 3.0, with customers reassessing how to deploy LLM-related telemetry in the AI / agentic era
Pre-2024, customers focused on traditional Infra / APM. From 2025, AI budgets expanded sharply, bringing entirely new telemetry / log / trace requirements; customers are now rethinking their existing observability architecture and carefully evaluating what can and cannot be consolidated
AI further raises the importance of cardinality (the ability to handle multiple metric / trace combinations simultaneously), where Chronosphere has an architectural edge over DDOG / DT; that said, it is not the sole determinant — some customers are also experimenting with OTel
Customers are increasing AI investment, but observability spend has yet to catch up
~2/3 of global enterprises have adopted some level of AI applications, but <5% have deployed corresponding observability / security layers
AI is viewed as a “must-do” investment, while observability is seen as something that can wait
2Q26 expected to accelerate slightly vs 1Q; 2H26 acceleration should be more pronounced
Based on existing pipeline alone, 2H26 tracks ~22–23% y/y; with new bookings, growth could reach 25%
2H acceleration is driven by LLM observability, Bits AI and DevOps tools
