Artificial intelligence (AI) stocks have had a forgettable 2025 so far, as some investors book profits in companies benefiting from the adoption of this technology following a couple of terrific years in 2023 and 2024.
That's not surprising. Uncertainty over the tariff-fueled trade war and concerns about the direction AI spending could head following the release of DeepSeek's cost-effective AI model earlier this year have dented investor confidence in these stocks.
Other investors (and many experts), though, are of the view that AI adoption is still in its early phases and is likely to take off impressively in the long run. For instance, analysts at Goldman Sachs predict that the technology could increase global gross domestic product (GDP) by $7 trillion, or 7%, in the long run. McKinsey's estimates are even more ambitious, with the management consulting firm predicting that AI could contribute $17.1 trillion to $25.6 trillion annually to the global economy.
If you lean toward the optimistic side, now might be a good time to look at two AI stocks that have the potential to soar in the second half of 2025 and beyond.
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1. Datadog
Datadog (DDOG 3.31%) provides a way to monitor, troubleshoot, and evaluate performance, safety, and security for cloud-based applications, which it calls observability. Management says it has seen an increase in customer interest "for next-gen AI observability and analysis."
The company provides monitoring for large language models (LLMs). Customers can find and fix errors and detect anomalies to boost performance and reduce the operational costs of their AI models.
NASDAQ: DDOG
Key Data Points
Datadog's Bits AI is a generative AI assistant that provides insights from the observability and security data customers generate using its platform. And the company has improved Bits AI even more with features that allow it to investigate observability and security alerts on its own and coordinate the response to incidents without constant human supervision.
The company's AI tools are gaining adoption among its customers. CEO Olivier Pomel said on the latest earnings conference call that more than 4,000 customers used one or more Datadog AI integrations, which allow users to connect various tools and services to Datadog and provide a unified view of their entire tech stack. This number has doubled year over year.
He also said that the number of customers deploying its LLM observability solution has doubled in just six months. Datadog's AI-specific customers contributed 6 percentage points toward its year-over-year revenue growth last quarter.
The company believes that the adoption of AI is going to be a long-term tailwind, and Straits Research backs that up, forecasting that the size of the LLM market will grow at an annual rate of 34% through 2033.
Moreover, annual revenue from the adoption of AI services in the cloud is expected to quadruple between 2024 and 2029, according to MarketsandMarkets research.
So, the demand for Datadog's cloud-based observability and monitoring should ideally increase in the long run thanks to AI. The company raised its full-year forecast for 2025 when it released its results earlier this month, and analysts forecast an acceleration in its revenue growth.
Data by YCharts.
If Datadog's growth turns out to be better than analysts' expectations as the year progresses, it should give the stock price a boost.
Datadog stock has already jumped nearly 16% in the past month, and there could be more upside as it benefits from an AI-fueled bump.
2. Confluent
Confluent (CFLT +0.00%) has taken a big beating in the stock market so far in 2025, losing nearly 19% of its value as the company's recent quarterly results weren't confidence-inspiring. Cautious guidance for the rest of the year due to macroeconomic uncertainties led investors to sell the stock even though the company reported a big bump in its revenue and earnings.
NASDAQ: CFLT
Key Data Points
Confluent's data-streaming platform is likely to play a key role in the proliferation of AI because it's cloud-based and enables customers to bring data out of silos so that they can access, store, manage, and process it in real time. This is allowing its data cloud platform to increase its adoption among companies building generative AI applications and looking to harness the real-time attributes of the platform.
Customers can build a real-time database that can be deployed for building real-time generative AI and agentic AI applications, with the underlying LLMs powered by the inflow of continuous data streams. That's why investors might want to consider buying the stock following its recent drop: The company's business should gain momentum later in the year as AI adoption keeps improving.
Confluent may be able to beat its conservative guidance for this year, calling for revenue growth of 19% to 20%. The company's customer base is improving at a nice clip (it ended the first quarter with 6,140 customers, up by 20% from the year-ago period). while existing customers continue to spend more. Its dollar-based net retention rate stood at a healthy 117%, despite the macroeconomic headwinds that are weighing on the company.
Earnings growth is expected to accelerate from 24% this year to 31% in 2026, according to consensus analyst estimates. And that acceleration could arrive early with the continued growth in the company's customer base and the cross-selling opportunities that AI could bring.
That's why Confluent's actual results could end up being better than its guidance -- and that would send the stock higher. It has a 12-month price target of $28, according to the 35 analysts covering the stock, which would be a 28% jump from current levels. It can indeed hit that mark by jumping higher in the second half of 2025, thanks to a potential improvement in its growth rate.
