JPMorgan Chase CEO Jamie Dimon spoke about artificial intelligence (AI) in his recent letter to shareholders: “We are completely convinced that the consequences will be extraordinary and perhaps as transformational as some of the major technological inventions of the last centuries: consider the printing press, steam. engine, electricity, IT and Internet.”
Microsoft founder and former CEO Bill Gates shared a similar opinion on his blog last year. “The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the Internet and the mobile phone.” If Gates and Dimon are right, the artificial intelligence boom could be the investment opportunity of a lifetime.
here’s why Nvidia (NASDAQ:NVDA) And Data Dog (NASDAQ:DDOG) are worth buying.
Nvidia: accelerated computing products for the era of artificial intelligence
Nvidia is the standard bearer of accelerated computing, a discipline that combines specialized hardware and software to accelerate complex data center workloads such as artificial intelligence. The company is best known for its graphics processing units (GPU). It has more than 90% market share in data center GPUs and more than 80% in AI chips.
However, Nvidia is doing a brisk business outside of GPUs. Its portfolio also includes central processing units (CPUs) and networking equipment specifically designed for AI. The former is becoming a multi-billion dollar revenue stream, and the latter has already evolved into a $12 billion revenue stream. Nvidia also has a thriving subscription software and cloud services business that recently surpassed $1 billion in annual revenue.
This full-stack strategy (i.e. hardware, software and services) is particularly formidable when combined with Nvidia’s technological prowess and capacity for innovation. The company is still one to two steps ahead of its competitors in terms of performance and occupies a unique place in the AI value chain, given that it can provide its customers with almost every aspect of an AI data center. Indeed, CEO Jensen Huang recently told analysts, “We’re literally building the entire data center.”
Nvidia reported first-quarter financial results that beat expectations in terms of revenue and bottom line. Revenue rose 262% to $26 billion, driven by particularly strong sales growth in the data center segment, and non-GAAP net income jumped 461% to 6.12 $ per diluted share.
Wall Street expects Nvidia to grow its earnings per share by 31.7% annually over the next three to five years. This consensus estimate makes its current valuation of 70.5 times earnings seem a bit expensive, but not unreasonably so. Investors should start with a very small position and add shares if there is a significant decline.
I will end with a quote from Morgan Stanley analyst Joseph Moore: “Ultimately, we think the context warrants exposure to AI, even amid extreme enthusiasm – and Nvidia remains the clearest way to get that exposure.”
Datadog: performance monitoring software in the age of artificial intelligence
Datadog specializes in observability software. Its platform integrates nearly two dozen modules that address multiple markets, including infrastructure monitoring, application monitoring, and digital experience monitoring, as well as log management and software delivery.
The company has a strong presence in several of these categories. Its broad portfolio of integrated software is attractive to businesses that want to eliminate one-off products and consolidate their expenses.
Datadog has integrated artificial intelligence capabilities into its platform, such as anomaly detection to predict issues, root cause analysis to accelerate investigations, and intelligent alerts to streamline corrective actions. Forrester Search recognized the company as a leader in AI for IT operations software, and the report notes that “Datadog leads the pack when it comes to insights and data visualizations.”
The company reported encouraging first quarter financial results. Its number of customers increased by 10% to 28,000, and the average spend per existing customer increased by more than 10%. In turn, revenue increased 27% to $611 million and non-GAAP net income jumped 91% to $0.44 per diluted share. Datadog is well-positioned to maintain this momentum as AI makes IT environments more complex, creating an increased need for observability software.
The Datadog platform integrates across the entire AI technology stack to provide performance monitoring of infrastructure, models and applications. Additionally, the company recently introduced Bits AI, a generative AI assistant that streamlines investigative workflows by answering questions in natural language, automating certain tasks, and suggesting code fixes.
Last year, Alex Zukin, an analyst at Wolfe Research, predicted that the rise of generative AI could make Datadog “the fastest-growing software company.” Similarly, Morgan Stanley analyst Sanjit Singh selected Datadog as one of the software companies best positioned to monetize generative AI.
Wall Street expects Datadog to grow sales by 25% annually over the next three years. This consensus estimate makes its current valuation of 18.6 times sales seem reasonable.
Should you invest $1,000 in Nvidia right now?
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennevine has positions at Nvidia. The Motley Fool holds positions and recommends Datadog, JPMorgan Chase, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
The Investment Opportunity of a Lifetime: 2 Brilliant Artificial Intelligence (AI) Stocks to Buy Now was originally published by The Motley Fool
