Investors Eye AI Stocks: Datadog and AMD Show Strong Potential

The recent downturn in the Stock market has left many investors feeling uneasy. Notably, the stocks that have taken the hardest hits in recent weeks are the same ones that propelled the market higher over the past two years: artificial intelligence (AI) stocks.

Factors contributing to the recent decline in major AI stocks include advancements from China’s DeepSeek AI and increasing economic uncertainty. Despite this, experts project significant growth in the artificial intelligence sector over the next several years. Research from Fortune Business Insights forecasts the total AI market will expand from $233 billion in 2024 to $1.77 trillion by 2032, suggesting now could be an opportune time to invest in undervalued AI stocks for future gains.

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Two AI Stocks to Consider Amid Market Fluctuations

Two stocks stand out in the current market landscape, showing the potential for gains up to 124%, according to certain Wall Street analysts. Datadog (NASDAQ: DDOG) and Advanced Micro Devices (NASDAQ: AMD) warrant closer examination.

Image source: Getty Images.

1. Datadog: Potential for 82% Upside

Datadog offers businesses a platform to monitor data across their technology systems, allowing for quick identification and resolution of issues before they escalate. With a growing number of companies transitioning workloads to the cloud and integrating AI, the demand for Datadog’s services is increasing.

Although Datadog disappointed investors with its forecast of slower revenue and earnings growth in 2025, analysts have made adjustments to their estimates. Loop Capital has maintained a $200 price target for the Stock, indicating an 82% upside as of now. The firm sees a promising opportunity for Datadog to expand its addressable market into new areas, such as AI and security, which could drive substantial earnings growth.

Datadog is currently experiencing impressive growth from its “AI-native customers,” who depend heavily on AI capabilities. These customers contributed to 6% of Datadog’s annual recurring revenue in Q4, doubling from the previous year. This growth trajectory may continue as more AI businesses emerge and existing clients expand their usage of Datadog’s solutions.

The company’s AI features are not only beneficial to its AI-native clients but also broadly useful for anyone utilizing large language models (LLMs). Datadog’s LLM observability service assists businesses in identifying errors generated by LLMs while tracking operational metrics, which can enhance the efficiency of their systems.

Recently, Datadog introduced an AI-powered assistant called Bits AI, enabling users to interact with its observability platform in natural language, which simplifies the troubleshooting process. Currently, about 3,500 out of around 30,000 customers are utilizing at least one of Datadog’s AI integrations, up from 2,000 as of May 2024.

Datadog’s stock trades at an enterprise-value-to-revenue multiple of approximately 13, a competitive rate given its growth potential. As the company could grow its top line by 20% annually for years ahead and enhance margins further, current prices may present a valuable buying opportunity.

2. Advanced Micro Devices: 124% Potential for Growth

Entering 2024, AMD was positioned to capture more of the booming graphics processing unit (GPU) market. As large technology companies invest heavily in data centers, AMD offers a more cost-effective alternative to Nvidia’s high-end chips and proprietary CUDA platform. However, AMD has struggled to match Nvidia’s momentum.

Compounding investor concerns, AMD recently projected a 7% sequential decline in total sales for Q1, indicating a similar downturn in its data center segment, which includes its AI chips.

There is, however, optimism for AMD’s future. Analyst Hans Mosesmann from Rosenblatt has set a price target of $225 for the Stock, suggesting a 124% upside from current levels. He believes the total addressable market for data center GPUs could reach $500 billion by 2028, with AMD poised to achieve a double-digit market share in that time frame.

If AMD secures only 10% of the data center AI accelerator market by 2028, it could realize $50 billion in revenue, which would quadruple its data center business compared to 2024 figures. The potential for increased market share appears strong as businesses continue to seek cost-effective solutions for AI inference, potentially reducing reliance on high-end Nvidia chips.

Beyond GPUs, AMD is competitive in the central processing unit (CPU) sector, steadily gaining share in the PC and server markets. The company reported capturing over 50% market share with most of its CPU data center clientele, driven by demand for its latest EPYC CPUs.

Though AMD has not experienced growth rates comparable to Nvidia in the GPU market, it still exhibits robust revenue and earnings growth. Analysts forecast 23% revenue growth for this year, followed by 21% growth in 2026. Additionally, AMD is on track to improve margins while offering competitively priced computing options, with management projecting an increase in operating margins from 24% in 2024 to the mid-30% range over time.

Currently, AMD shares trade for roughly 21 times forward earnings, a favorable valuation for an AI Stock. This price point becomes even more attractive given the anticipated earnings growth, with analysts expecting a 35% increase in earnings by 2026. Finding such growth potential at this valuation is a challenge for investors.

Don’t Miss This Opportunity for High Returns

Have you ever felt you missed out on investing in successful stocks? You may want to pay attention.

Occasionally, our team of analysts issues a “Double Down” Stock recommendation for companies they believe are primed for rapid growth. If you’ve been concerned about missing investment opportunities, now may be the time to act before the market moves further. The figures speak for themselves:

• Nvidia: If you invested $1,000 when we doubled down in 2009, you’d have $300,143!*
• Apple: If you invested $1,000 when we doubled down in 2008, you’d have $41,138!*
• Netflix: If you invested $1,000 when we doubled down in 2004, you’d have $495,976!*

Right now, we are issuing “Double Down” alerts for three promising companies, and another chance like this may not come soon.

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*Stock Advisor returns as of March 10, 2025

Adam Levy has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Datadog, and Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.