Datadog Inc. (NASDAQ:DDOG) stock declined Thursday despite reporting second-quarter results that topped Wall Street expectations and raising its full-year revenue and adjusted earnings guidance.

Second-Quarter Financial Performance

The company reported adjusted earnings of 65 cents per share, beating the analyst consensus estimate of 59 cents. Revenue increased 36% year over year to $1.12 billion, exceeding analysts’ expectations of $1.08 billion.

GAAP net income increased to $44.6 million, or 12 cents per diluted share, from $2.6 million, or 1 cent per diluted share, a year earlier.

Non-GAAP operating income rose to $257 million from $164.1 million, while operating cash flow climbed to $315.9 million and free cash flow increased to $278.7 million.

Adjusted gross margin contracted by 100 bps to 80%, while adjusted operating margin expanded by 300 bps to 23% during the quarter.

Cash, cash equivalents and marketable securities totaled about $5 billion at the end of the quarter.

AI Expansion And Customer Growth

CEO Olivier Pomel said customers continue to expand their use of artificial intelligence and are increasingly relying on Datadog’s platform to monitor, secure and manage AI-enabled applications.

He also highlighted the company’s rollout of new AI products, including Bits Code, Bits Chat and Bits Agent Builder, along with the acquisition of Adaptive ML to strengthen its AI research capabilities.

Business momentum remained strong during the quarter. Customers generating at least $100,000 in annual recurring revenue increased about 23% from a year earlier to roughly 4,720.

Guidance Raised Above Wall Street Expectations

Datadog forecast third-quarter adjusted earnings of 63 cents to 65 cents per share on revenue of $1.135 billion to $1.145 billion, compared with analysts’ estimates of 62 cents per share and $1.106 billion in revenue.

The company also raised its full-year 2026 guidance. It now expects adjusted earnings of $2.50 to $2.54 per share, up from its prior forecast of $2.36 to $2.44 per share, compared with analysts’ estimate of $2.42.

Revenue is projected at $4.45 billion to $4.47 billion, up from the previous range of $4.30 billion to $4.34 billion and above the consensus estimate of $4.35 billion.

DDOG Price Action: Datadog shares were trading lower by 16.76% at $235.72 at the time of publication on Thursday, according to Benzinga Pro data.

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