Jefferies’ Top Crowded Software Long Positions: Top 10 Stocks

7. Datadog, Inc. (NASDAQ:DDOG)

Number of Hedge Fund Holders In Q2 2024: 79

Shares Short % Of Outstanding: 2.39%

Datadog, Inc. (NASDAQ:DDOG) provides software that enables businesses to monitor and observe their cloud infrastructure via event logging, performance management, and other operations. This means that the firm’s fate is tied to the health of the cloud industry, which in turn depends on corporate financial flexibility that is typically found in a low interest rate environment. As a result, it’s unsurprising that Datadog, Inc. (NASDAQ:DDOG)’s shares are up by a modest 8.29% year to date since the cloud sector has struggled to maintain momentum as corporate budgets remain stressed. It also means that the firm will benefit once cloud spending picks up since its narrative depends on Datadog, Inc. (NASDAQ:DDOG)’s competitive strengths in the monitoring and observability segment of the cloud industry. It does enjoy several advantages on this front though, courtesy of its portfolio of 23 products and the ability to enable customers to monitor more than 1,000 microservices.

Datadog, Inc. (NASDAQ:DDOG) is also targeting observability for LLMs and AI systems. Here’s what management shared during the Q2 2024 earnings call:

“In the next-gen AI space, we announced the general availability of LLM Observability, which allows application developers and machine learning engineers to efficiently monitor, troubleshoot and secure LLM applications.

With LLM Observability, companies can accelerate the development of AI applications into production environments and reliably operate and scale them. We also expanded Bits AI with new capabilities. As a reminder, Bits AI is a Datadog built-in AI copilot. In addition to being able to summarize incidents and answer questions, we previewed at DASH the ability for Bits AI to operate as an agent and perform autonomous investigations. With this capability, Bits AI proactively surfaces key information and performs complex tasks such as investigating alerts and coordinating incident response. Taking a step back and looking at our customer base, we continue to see a lot of excitement around AI technology. More customers are telling us that they are levering up on AI and ramping up experimentation with the goal of delivering additional business value with AI, and we can see them doing this.

Today about 2,500 customers use one or more of our AI integrations to get visibility into their increasing use of AI. We also continue to grow our business with AI-native customers, which increased to over 4% of our ARR in June. We see this as a sign of the continuing expansion of this ecosystem and of the value of using Datadog to monitor the production environment. I will note that over time, we think these metrics will become less relevant as AI usage and production broadens beyond this group of customers.”