Datadog's stock experienced a significant pre-market plunge of 5.10% on Tuesday, as cautious commentary from a prominent fund manager raised concerns about the software sector's vulnerability to AI-driven disruption.

Jonathan Cofsky, co-portfolio manager of the $9.35 billion Janus Henderson Global Technology and Innovation Fund, expressed reservations about software stocks during a recent interview. He highlighted that the software industry faces disruptive risks from artificial intelligence, as AI fundamentally automates labor. Cofsky noted that while companies like Datadog have seen a reacceleration of revenue from AI, the sustainability of this momentum remains uncertain.

Drawing on historical patterns of disruptive trends, Cofsky pointed out that typically only 10% to 20% of incumbent companies successfully navigate such transitions. His fund focuses on companies that are "extremely difficult to replicate and can layer AI as an incremental revenue stream," which includes Datadog, but the overall cautious outlook on the software sector's adaptation to AI appears to have contributed to the stock's pre-market decline.