Datadog Beat on Revenue, Beat on Earnings, and Raised Its Outlook. The Stock Fell 19%.

Revenue grew 36% year over year last quarter, faster than the prior quarter's 32% pace.

Management raised its full-year revenue guidance to a range of $4.45 billion to $4.47 billion.

Management's third-quarter guidance implies year-over-year revenue growth of about 29%.

Shares of Datadog (NASDAQ: DDOG) sank about 19% Thursday after the software company reported its second-quarter results. The reaction might seem odd.

Revenue grew 36% year over year, landing about $40 million above the high end of the range management forecast in May. Adjusted earnings came in ahead of the company's own guidance, too. And management raised its full-year outlook for both revenue and earnings.

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But the market wasn't grading the quarter. It was grading what comes next. And tucked inside the raised outlook is a number implying Datadog's growth could slow meaningfully from here.

Datadog sells observability software (the tools companies use to monitor their applications, infrastructure, and security in one place). Demand for those tools has been booming as businesses roll out artificial intelligence (AI) applications they need to watch closely.