Software Is the Next Big AI Opportunity: 1 AI Stock Highly Recommended by Wall Street to Buy Now
Goldman Sachs divides the artificial intelligence (AI) boom into several different phases. The first centers entirely around semiconductor company Nvidia. The second centers around infrastructure companies like Microsoft and Amazon. And the third centers around software companies.
In a recent interview, Ben Snider at Goldman Sachs told CNBC that hedge fund managers began transitioning toward AI software stocks in the third quarter. “Funds shifted a little bit away from “Magnificent Seven” stocks and toward software,” he said, “and this was really the first quarter where we saw that.”
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The phases will ebb and flow, so there is plenty of time to invest in chipmakers and infrastructure companies. However, now is also a good time to start building positions in AI software stocks. Datadog (NASDAQ: DDOG) checks that box, and Wall Street is overwhelmingly bullish. Of the 45 analysts following the company, 91% rate the stock a buy.
Datadog specializes in observability software. Its platform includes roughly two dozen products that help businesses monitor, analyze, and resolve performance problems across their applications and infrastructure. Those products are built atop an artificial intelligence (AI) engine that helps with incident resolution by automating alerts, insights, and root cause analysis.
Datadog’s broad portfolio lets businesses consolidate spending through a single observability platform, which is easier than integrating tools from multiple vendors. That convenience has helped make Datadog a leader in observability software. But Forrester Research has also recognized its leadership in AI for IT operations. “Datadog leads the pack in data insights and visualizations,” analysts wrote.
Observability software helps businesses prevent issues and avoid costly IT outages, and the need for those tools increases as computing environments become more complex. That means cloud migration and the proliferation of AI are tailwinds for Datadog. So, earlier this year, the company introduced LLM Observability, a suite of performance monitoring tools for infrastructure and large language models that power generative AI applications.
Datadog reported solid financial results in the third quarter, beating estimates and raising full-year guidance. The company increased its customer count 9% to 29,200, and the average spend per existing customer rose more than 10%. In turn, revenue increased 26% to $690 million, and non-GAAP (adjusted) earnings jumped 27% to $0.46 per diluted share.
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