Datadog and Figma report strong revenue and earnings but fall short on gross margins, spooking investors amid AI spending concerns.
Software stocks slid Thursday as Datadog and Figma led declines after quarterly results failed to meet margin expectations. Datadog’s adjusted gross margin hit 80%, below the 80.7% consensus, despite beating revenue and earnings estimates.
The sector has struggled since April as investors scrutinize AI’s impact on business models. Figma’s earnings also topped forecasts, but rising AI inference costs—absorbed by the company during beta testing—pressured margins. CFO Praveer Melwani warned of near-term volatility in gross margins.
Salesforce, ServiceNow, Workday, and Cloudflare also fell, extending losses from earlier in the year. The declines reflect broader concerns over AI integration costs and their effect on profitability.