Datadog Inc at JPMorgan Global Technology, Media and Communications Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mark Murphy - JPMorgan - Analyst : So it's interesting when you run through and look at the stats, Datadog is one of only four enterprise software companies with at least $3 billion in revenue and growing mid-20s plus. The other three are Palantir, CrowdStrike, we were just talking about, and Snowflake. So clearly, something very rare is happening at Datadog. Can you explain in layman's terms, what is the problem that you're out there solving for customers? And what do you think is the phenomenon that's fueling that level of growth and scale?

Question: Mark Murphy - JPMorgan - Analyst : So Olivier, you have over 30,000 customers. They're using Datadog to observe what's happening all across their own hyperscaler environments and basically to keep it running. So it gives you quite the vantage point to comment on and really try to understand the trends. And we look back on it, and interestingly, in Q4, while the stock market was rising, it was a very disappointing quarter across all four of the top hyperscalers. All four of them either missed or guided below in Q4. And then after that, you had the threat of a trade war coming in. The market was sliding. And now in Q1, the hyperscaler results actually felt a little more stable. When you look specifically at Azure, it accelerated, it accelerated and surprised quite positively. How are you reading the tea leaves on cloud activity for 2025 amidst potentially a trade war? Certainly, the headlines are changing every day.

Question: Mark Murphy - JPMorgan - Analyst : Okay. So core trends, pretty healthy and resilient. And you've been consistent on that, on stage here, I think, over the course of several years. Thinking back to March and April, we did hear some feedback that companies in the EU and actually Canada becoming a little hesitant, right, to put more data into a US cloud provider Amazon, Azure, Google, et cetera. And there was this comment that they were realizing that they need an Airbus of the cloud, right, to maintain independence, a local cloud provider. Do you see anything tangible happening there? Do you think the bark is louder than the bite?

Question: Mark Murphy - JPMorgan - Analyst : So it's more talk than action. You do think there could be a trend line there multiyear, but net-net opportunity for Datadog.

Question: Mark Murphy - JPMorgan - Analyst : Okay. Very helpful perspective. So I want to think back for a moment, Olivier, and the mood out there was very different three or four weeks ago. Coming into this earnings season, we were saying that investors were too pessimistic, and we were emphasizing that really, the hard data wasn't changing as much as the soft data, right? So we were saying the mood has changed, but the activity hasn't really changed. For Datadog, the Q1 results, though, were very solid. And what stood out was you had sort of the bookings health, you had backlog growth through CRPO had actually accelerated, noticeably, it accelerated to 30%. And then eight-figure deals, you had done 1 a year ago in Q1, you did 11 this time. So what do you think drove strength during Q1? And why did you have so many customers booking that much business given the kind of environment we've been in?

Question: Mark Murphy - JPMorgan - Analyst : Okay. So cloud migration is doing well, the sales capacity kicked in, you're structurally gaining share. We had showed data, again, coming into this earnings season in Olivier, that the current environment was actually looking -- it's less severe than what we saw during the COVID lockdowns, and it is actually less severe than the onset of, we call it the software recession, which was the second half of 2022. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 13, 2025 / 5:10PM, DDOG.OQ - Datadog Inc at JPMorgan Global Technology, Media and Communications Conference We thought investors were expecting this environment to be worse than those prior cycles. Can you compare and contrast what you're seeing

Question: Mark Murphy - JPMorgan - Analyst : Have you tried to look at that specifically in the industries that are most heavily tariff impacted? We think of because we -- to be fair, we had a wave of pre-announcements from airlines. There were a bunch of retailers that had problems. They were automakers having problems. Is any of that looking like the canary in the coal mine right now in the data?

Question: Mark Murphy - JPMorgan - Analyst : Okay. So it's more of an insulated pocket for you. I'm going to talk for a moment about the AI native trend, Olivier. Datadog has just clearly stood out for developing one of the strongest AI tailwinds really across the entire software landscape. The AI natives reached 8.5% of your ARR in Q1. So it's actually Microsoft and Datadog are the two companies that are quantifying a really substantial tailwind at this point. Can you help us understand who are those companies that are driving AI for you? And then why do you think Datadog is so linked to it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 13, 2025 / 5:10PM, DDOG.OQ - Datadog Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Mark Murphy - JPMorgan - Analyst : And if we drill down into that and look at how they're using it, I think Datadog isn't really getting involved so much in the training side, right, where they're building the models. You are involved in the inferencing stage. So in other words, product reaches commercialization, and then you're getting involved. Inferencing feels like it's a lot earlier stage to us and that it's probably going to have more durable, more explicit growth because basically, you just look around and say, well, there's so many models that are still being built. Would you agree with that?

Question: Mark Murphy - JPMorgan - Analyst : Okay. So it's been an interesting journey, Olivier. For the last year or two, when I will ask institutional investors, what do you think of various AI products or copilots, a lot of people shrug their shoulders and seem a little unimpressed at what had been out there. We started commenting recently that the killer AI product for the buy side has finally arrived. It is here. That product is called Deep Research. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 13, 2025 / 5:10PM, DDOG.OQ - Datadog Inc at JPMorgan Global Technology, Media and Communications Conference And the response that we get is very different when we ask about that. People say that it's amazing. It will take a project. It will divide it into sub tasks. It will right Python, code for you, basically, it saves people a ton of time. What do you think these -- what do you think the advent of these reasoning models is going to do for growth of inferencing?

Question: Mark Murphy - JPMorgan - Analyst : So they have a different level of complexity, they have a different level of compute intensiveness. So sometimes, there's eight GPUs that are clocking at once. Does that make it more important or more of a challenge to try to observe and monitor those environments?

Question: Mark Murphy - JPMorgan - Analyst : And so one of the big hurdles that these LOM providers will have is dealing -- they're trying to deal with the bias in the models, the hallucination of the models. They're trying to deal with the drift in the models. And it has come to our attention that Datadog can help them with that. Can you help us understand what are the mechanics there? What does that value proposition look like?

Question: Mark Murphy - JPMorgan - Analyst : Okay. So that sounds like it would play into the AI tailwind that you have had, which you disclose that as coming from AI natives. And I think -- so it's the big model builders, et cetera. One of the big questions is when do we think enterprise adoption of AI is going to start kicking in? And how do we want to try to forecast? Like in other words, when do you think a big bank, a big retailer or a big pharmaceutical company is going to be done training a model and it's going to actually be deploying it and then, therefore, driving revenue for Datadog?

Question: Mark Murphy - JPMorgan - Analyst : So what's happening with AI natives will inevitably trickle its way out into the broader landscape of --

Question: Mark Murphy - JPMorgan - Analyst : For sure. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 13, 2025 / 5:10PM, DDOG.OQ - Datadog Inc at JPMorgan Global Technology, Media and Communications Conference

Question: Mark Murphy - JPMorgan - Analyst : I was going to say it sounds familiar.

Question: Mark Murphy - JPMorgan - Analyst : Okay. So AI, Olivier, is also impacting code writing itself very rapidly. And you may have seen the CEO of Anthropic recently said that in 12 to 18 months, 100% of all code could be written by AI. And I'm sure there's a bit of hyperbole in this as always. But can you speak to how that trend might play out for Datadog? Because I think, in theory, more code being written more rapidly, more applications being deployed, there's just more out there that needs monitoring.

Question: Mark Murphy - JPMorgan - Analyst : Is AI helping Datadog itself? Is it helping you write code faster? Are there any other AI efficiencies? Like are you -- is it -- is AI handling support tickets for you?

Question: Mark Murphy - JPMorgan - Analyst : And how about the progression of DeepSeek? When DeepSeek kind of dropped onto the landscape, which was back in January, we had hosted a large investor call, and we had a contact saying it's going to reduce the cost of inferencing by 90%. And I think one of the questions is, does that cause a flywheel, if the cost of building an AI model comes down, then are you just going to have a lot more AI models coming out into the marketplace? Do you see any lasting impact from it?

Question: Mark Murphy - JPMorgan - Analyst : So Olivier, in the remaining several minutes that we have, I do want to ask you about philosophically how you view investments especially in the headcount. We published these statistics every quarter where we try to look at hiring trends across the software landscape. And basically, for the last two or three years, it's been very sluggish. After I got off the stage with Microsoft today, Microsoft announced a 3% layoff. And so it feels a little different where you have growth companies that are very healthy and very strong and they're trimming out some of the headcount. Datadog feels like more than any other company. It feels like it's investing to win. And you took headcount up 25% last year. What are you seeing differently with respect to this overall investment cadence?

Question: Mark Murphy - JPMorgan - Analyst : How do you think about in the last minute that we've got here, we've always felt that the best software companies out there, the ones that you want to align with, they're going to try to consolidate point products. They're going to try to put it on a single platform. But the key thing to look for is they're going to do it organically, right? They're going to be builders rather than acquiring. And we see that very clearly. One of our discussions said there's growth in every Datadog contract that I see. Culturally, how do you think about preserving this level of organic innovation and kind of avoiding the pitfall becoming the big slow-moving company?

Question: Mark Murphy - JPMorgan - Analyst : Great to see the discipline. Thank you for keeping the Internet running for all of us. And thank you so much for joining us again, Olivier.