Disappointing earnings and guidance from Datadog and HubSpot spark a sell-off in consumption-based software stocks.
Software stocks declined sharply after Datadog (DDOG) and HubSpot (HUBS) reported second-quarter earnings and guidance that fell short of investor expectations. Shares of consumption-based business model firms, including Snowflake (SNOW) and MongoDB (MDB), led the losses as concerns over AI pricing and demand weighed on the sector.
Datadog surpassed Q2 earnings and revenue estimates but provided a revenue outlook that underwhelmed analysts. Traditional software-as-a-service (SaaS) vendors, such as Salesforce (CRM), typically rely on fixed subscription fees, while newer players like Datadog charge based on usage, making them more sensitive to shifts in customer spending.
The sell-off highlights broader unease about the sustainability of growth in AI-driven software markets, particularly for companies dependent on variable consumption models.