Wall Street doesn't always get things right, and it probably isn't wise to base an investing decision on what one analyst says. But it can pay to listen when a large group of analysts reach a clear bullish consensus on a specific stock. Sometimes it's a sign there could be positive catalysts on the horizon that will help drive upward momentum.
According to The Wall Street Journal, the majority of analysts the newspaper has surveyed give both Confluent (CFLT +0.00%) and Datadog (DDOG +6.12%) the highest possible buy rating. In fact, not a single analyst recommends selling either of these artificial intelligence-related stocks. Here's why.
NASDAQ: CFLT
Key Data Points
1. Confluent: A leader in data streaming
It's possible you've never heard of data streaming, but I guarantee you interact with the technology regularly. When we shop online, data streaming powers the live inventory information we use to make our purchase decisions. Similarly, it powers the data feeds on our stock trading and sports betting platforms to ensure we get real-time, up-to-date prices.
The creators of the open-source data-streaming platform Apache Kafka founded Confluent to enhance its capabilities and help enterprises deliver more live experiences to their customers. Walmart, for example, uses Confluent to connect its online and physical stores for real-time inventory management, so the company instantly knows whenever a product is sold at any location. This means that Walmart can replenish stock before it runs out, so customers always find what they need when they visit Walmart in person or online.
Confluent believes the data streaming addressable market is worth $60 billion. However, that number could grow thanks to artificial intelligence (AI) because developers are turning to platforms like Confluent to build data pipelines at scale. Simply put, the success of an AI model depends on its ability to quickly absorb data so it can produce accurate responses or predictions. Therefore, it's no surprise that 90% of IT specialists think data streaming will drive innovation in the AI industry, according to a recent survey by Confluent.
Confluent generated $865 million in revenue over the last four quarters, so it has barely scratched the surface of its opportunity. It had 5,440 customers at the end of the recent second quarter (ended June 30), which was a 13% increase from the year-ago period, but its top-spending cohorts grew even faster. The company had 1,306 customers spending at least $100,000 per year on its platform, which was up 14%, and 177 customers spending at least $1 million, which was up 20%.
Those figures highlight the growing importance of data streaming among larger organizations.
The Wall Street Journal tracks 32 analysts who cover Confluent stock, and 21 have given it the highest possible buy rating. Four more are in the overweight (bullish) camp, and six recommend holding. Although one analyst has assigned the stock an underweight (bearish) weighting, no analysts recommend selling.
Their average 12-month price target of $30.79 represents an upside of 49% from where Confluent trades as of this writing, but based on the company's growth and its addressable market, it could potentially go even higher in the long term.
NASDAQ: DDOG
Key Data Points
2. Datadog: A unique artificial intelligence play
Datadog developed a platform capable of monitoring cloud infrastructure around the clock. Since most businesses now have an online presence, they can reach a global customer base, which means their digital channels need to be running seamlessly 24 hours per day.
Datadog's platform can instantly alert an e-commerce operator if their website suffers a technical bug in one specific country so they can fix it before it impacts the customer experience. In the past, they might not have known there was an issue until they suffered a decline in sales, at which point it would have been too late.
Over 28,700 businesses, including retailers, gaming companies, banks, education providers, and more, rely on Datadog to monitor their infrastructure.
However, the company recently entered the AI industry with a new tool designed to monitor large language models (LLMs). An LLM is at the foundation of every AI chatbot or software application, and Datadog's new platform can help developers track costs, measure the performance of their models, and diagnose technical issues. Ultimately, this can give developers the confidence to bring their AI software to market more quickly.
Datadog generated $645 million in revenue in the recent second quarter of 2024 (ended June 30). CEO Olivier Pomel said 4% was attributable to AI, specifically, which doubled from 2% in the year-ago period. Plus, he said around 2,500 customers are already using Datadog's AI tools, which represents about 8.7% of its customer base.
According to a recent survey by PwC, around 70% of executives from leading corporations say AI will significantly change the way their organization creates value over the next three years. Therefore, Datadog will likely see the adoption of its AI tools grow significantly among its existing customer base, but they will also likely be a big draw for new customers.
The Wall Street Journal tracks 42 analysts who cover Datadog stock, and 28 have given it the highest possible buy rating. A further seven are in the overweight (bullish) camp, while seven others recommend holding. No analysts recommend selling.
Their average 12-month price target of $144.73 represents an upside of 28% from where Datadog trades as of this writing, but considering millions of businesses will likely adopt AI over time, investors should be taking a much longer-term view with this stock. Besides, Datadog stock hit an all-time high of $192 in 2021, so that could be a realistic target over the next few years.
