Datadog sells cloud monitoring software that watches customers' servers, applications and log files, and charges by the volume of data it swallows rather than by the seat. In the June quarter its revenue reached $1.12bn, up 35.6% — the fourth consecutive quarter in which its growth rate rose. Management told analysts on 6 August that the part of the business with nothing to do with artificial intelligence was growing in the high-20s, against 18% a year earlier, a fifth straight quarter of acceleration from that base.

Then it disclosed that its largest customer, described only as a significant AI company using 17 Datadog products, had renewed its contract at reduced usage starting in the September quarter. Guidance for that quarter came in at $1.135-1.145bn, growth of 28-29%. The shares fell 20.4% in a single session.

What is left is a price

That selloff did something unusual: it left Datadog costing exactly what it cost three months earlier. At $233.40 the shares are 26.34x trailing gross profit; on 21 May, at $218.04, they were roughly 26.45x. Gross profit grew as fast as the share price, so the advance since May contained no re-rating whatsoever. Stretch the window and the picture reverses — in late February the same measure was about 15x, so six months have added roughly 75% to the multiple. All of it landed before May.

Every other name in this corner of software did the opposite. Cloudflare, which runs a global edge network selling security, content delivery and serverless computing priced by usage, grew revenue 35.9% to $696.1m — statistically the same rate as Datadog. But its gross profit grew only 30.2%. Cost of revenue rose 53%, and reported gross margin fell to 71.8% from 74.9%, well under the high-seventies it held from 2021 through 2024. Management attributed the compression to a mix shift between paid and free network traffic, not to hardware, and noted the first sequential margin gain in eight quarters.

The shares are 55.30x trailing gross profit, against 44.2x in May and 38.9x in February — the group's most expensive claim, placed on its slower-growing line.

The demand underneath Cloudflare is not in doubt

Customers paying more than $100,000 a year reached 4,698, up 27%, with a record 986 net additions over twelve months; dollar-based net retention rose to 120%, six points higher than a year ago; contracted backlog reached $2.73bn, up 38%, growing faster than revenue. More than half of traffic across the network was non-human for the first time, and the developer count hit 7.4m after adding nearly 2m in one quarter, versus 1.5m in all of 2025.

What is absent is a revenue line attached to any of it. And chief executive Matthew Prince explicitly declined the inference-hardware land grab, arguing that selling commodity compute is unattractive. Network capital spending was 7% of revenue in the quarter, guided to 14-15% for the year — meaning the second half roughly doubles in intensity. Datadog's capital spending plus capitalized software runs 4-5% of revenue.

Two controls, pointing opposite ways

Palo Alto Networks, which sells firewalls and security subscriptions to large enterprises, has published no financial statements since early June; fourth-quarter results land 1 September. Its price per dollar of trailing gross profit went from about 27.0x in May to 37.50x — pure multiple, against an unchanged set of numbers. Those numbers show the cost of the $25bn CyberArk acquisition closed in February: April-quarter revenue up 31.1%, gross profit up only 21.5%, gross margin 67.6% against 72.9%, and a GAAP operating loss of $183m.

Dynatrace, Datadog's closest rival in monitoring software, grew just 16.2% and trades at 8.48x trailing gross profit with a 3.93% free-cash-flow yield. It also supplied the cleanest evidence that AI telemetry is a broad volume driver rather than one cohort's spending: more than 1,000 customers now monitor AI workloads in production, up from 850, and that group's consumption is growing 1.5 times as fast as everyone else's. CrowdStrike, meanwhile, is not in this trade — its 50-day average slipped below its 200-day in July and it has been in a clear downtrend since 6 August, despite 25.6% revenue growth and a 57.80x multiple.

The week the order became visible

All five peaked on 13-14 August. Into 21 August, CrowdStrike fell 12.3%, Cloudflare 10.1%, Palo Alto 8.8%, Datadog 8.6% — and Dynatrace, the cheapest, 0.5%. The drawdown sorted almost perfectly by price per dollar of gross profit, in the week the 30-year Treasury yield reached its highest level in nearly two decades. Higher long yields cut the present value of distant profits, and these are the most distant profits in software: Cloudflare's forward price/earnings ratio is 225x, Datadog's 92x.

The setup

Where it stands — Datadog's multiple has been flat since May while gross profit grew 33%; Cloudflare's expanded 25% on gross profit growing 30%. Would confirm — Datadog's September quarter landing at or above the 28-29% guide with non-AI growth still accelerating. Would invalidate — Cloudflare's gross margin falling below 71% as second-half capital spending doubles, with no disclosed AI revenue line. Watch next — Palo Alto reports fiscal fourth-quarter results on 1 September, its first numbers since early June. Valuation — Datadog 26.3x trailing and 23.4x forward gross profit; Cloudflare 55.3x and 48.4x, against 38.9x in February.