AI Isn't Killing Software. Datadog and Fortinet Just Proved It

The stock move

$Datadog (DDOG.US)$ and $Fortinet (FTNT.US)$ delivered exactly the kind of earnings reports software investors needed. Datadog closed at $188.73, up 31.3%, while Fortinet closed at $107.97, up 20.0%. That sharply outperformed SPY, which fell 0.3%, as well as the broader software and cybersecurity ETFs, with IGV up 3.5% and CIBR up 4.2%.

The reason these two reports mattered goes beyond one day of stock performance. Investors have spent the past year worrying that generative AI could pressure traditional software by automating workflows, reducing seat growth, and weakening pricing power.

Datadog and Fortinet gave the opposite message: AI is making cloud systems more complex, GPU workloads harder to monitor, and cyber threats more automated. That does not mean AI is good for every software company, but it does suggest that infrastructure software may be a major beneficiary.

Datadog: AI complexity is becoming an observability tailwind

Datadog reported Q1 revenue of $1.006 billion, up 32% year over year. GAAP operating income was $7 million, GAAP operating margin was 1%, non-GAAP operating income was $223 million, and non-GAAP operating margin was 22%. GAAP diluted EPS was $0.15, non-GAAP diluted EPS was $0.60, operating cash flow was $335 million, and free cash flow was $289 million.

The operating data were also strong. Datadog had about 4,550 customers with annual recurring revenue of $100,000 or more, up 21% from about 3,770 a year earlier. The company also launched GPU Monitoring, MCP Server, Bits AI Security Analyst, and other AI related products, reinforcing the idea that AI workloads create more need for visibility across infrastructure, applications, models, and security.

Guidance was the clearest sign that the beat was not just backward looking. Datadog guided Q2 revenue to $1.07 billion to $1.08 billion and raised full year 2026 revenue guidance to $4.30 billion to $4.34 billion, with full year non-GAAP operating income expected at $940 million to $980 million and non-GAAP EPS at $2.36 to $2.44.

Fortinet: AI is intensifying the security problem

Fortinet reported Q1 revenue of $1.85 billion, up 20% year over year. Product revenue grew 41% to $645 million, billings rose 31% to $2.09 billion, GAAP operating margin was 31%, non-GAAP operating margin was 36%, GAAP EPS was $0.72, and non-GAAP EPS was $0.82. Operating cash flow reached a record $1.08 billion, while free cash flow reached a record $1.01 billion.

The AI message was unusually direct. CEO Ken Xie said billings growth was driven by the convergence of networking and security and by "an increasingly complex threat environment that is being intensified by AI." Fortinet also said it is collaborating with leading AI companies, including Anthropic as part of Project Glasswing, OpenAI, and others.

Fortinet also raised its 2026 outlook. The company guided full year revenue to $7.71 billion to $7.87 billion, billings to $8.80 billion to $9.10 billion, non-GAAP operating margin to 33% to 36%, and non-GAAP EPS to $3.10 to $3.16. That combination of higher growth, strong billings, and high free cash flow is why the stock's reaction was so powerful.

AI may be a demand amplifier, not just a disruption risk

The biggest market takeaway is that AI does not affect all software in the same way. Some application software may face seat pressure if AI agents automate human workflows. But infrastructure software can benefit when AI creates more workloads, more data, more model traffic, more GPU clusters, and more attack surfaces.

Datadog benefits when companies need to monitor complex AI systems. Fortinet benefits when companies need to secure larger, more distributed, and more AI exposed networks.

Rebound space for core software names

The first group to watch is AI infrastructure software: $Datadog (DDOG.US)$ , $Snowflake (SNOW.US)$ , $Elastic (ESTC.US)$ , $Dynatrace (DT.US)$ , and $MongoDB (MDB.US)$ . These names benefit if investors conclude that AI increases usage based software demand rather than destroying it. Datadog is now the strongest proof point, but the rebound needs confirmation from other reports. IBD noted that Datadog's results helped spark a broader rally in consumption based software stocks, including MongoDB and Snowflake.

The second group is cybersecurity: $Fortinet (FTNT.US)$ , $Palo Alto Networks (PANW.US)$ , $CrowdStrike (CRWD.US)$ , $Zscaler (ZS.US)$ , $Okta (OKTA.US)$ , and $Cloudflare (NET.US)$ . Fortinet's report suggests AI is making the threat environment more complex, not less relevant.

Summary

Datadog and Fortinet did more than beat earnings. They helped change the software narrative from "AI may disrupt software" to "AI may increase demand for the right software." The winners are not necessarily every SaaS company, but the platforms that monitor, secure, and control the AI era.

Datadog offers the bigger upside case because growth is accelerating and AI workloads could lift usage for years. Fortinet offers the cleaner quality case because margins, billings, and free cash flow are already strong.

The broader software rebound can continue if upcoming earnings confirm the same message: AI is not killing software, it is separating the infrastructure winners from the weaker application names.

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