Artificial intelligence (AI) stocks have accounted for about three-quarters of S&P 500 (^GSPC 1.45%) returns since ChatGPT's launch in late 2022, according to JPMorgan Chase. But these Wall Street analysts still see substantial upside in The Trade Desk (TTD 2.75%) and Datadog (DDOG 0.38%):
- Mark Kelley at Stifel recently gave The Trade Desk a target price of $74 per share. That implies a 196% upside from its current share price of $25.
- Brian White at Monness recently set Datadog with a target price of $255 per share. That implies a 112% upside from its current share price of $120.
Importantly, while most analysts who cover The Trade Desk and Datadog do not expect triple-digit gains in the next year, the majority do think the stocks are undervalued. Here are the important details.
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The Trade Desk: Wall Street's median target price implies a 100% upside
The Trade Desk develops adtech software that helps media buyers plan, measure, and optimize digital campaigns. Its platform leans on artificial intelligence to evaluate ad impressions, customize bids, and continuously modify targeting parameters based on real-time performance data.
The Trade Desk's primary advantage lies in its independent business model, meaning it does not own media content that could bias ad spending on its platform. Whereas rivals like Alphabet's Google and Amazon have a clear incentive to steer media buyers toward their own inventory (e.g., YouTube or Prime Video), The Trade Desk avoids that conflict of interest.
Importantly, because The Trade Desk does not own ad inventory, publishers are more likely to share data with the company. That theoretically makes its targeting and measurement tools more effective for campaigns across the open internet: the decentralized network of websites, mobile apps, and streaming services not controlled by technology giants like Google or Amazon.
Indeed, The Trade Desk is the leading media buying platform for the open internet, and the company has a particularly strong presence in connected TV advertising, one of the fastest-growing categories in the broader digital advertising industry. However, the stock is down 80% from its high because investors worry that generative AI tools like ChatGPT will slow ad spending on the open internet.
In my opinion, investors are right to worry, but the stock still appears oversold. Wall Street expects The Trade Desk's adjusted earnings to increase at 13% annually through 2026. That makes the current valuation of 15 times earnings look relatively cheap. While I doubt the stock will return 196% in the next year, the current price still presents a buying opportunity.
Most Wall Street analysts who cover The Trade Desk would agree with that statement. The stock's median target price of $50 per share implies 100% upside from the current share price of $25.
NASDAQ: TTD
Key Data Points
Datadog: Wall Street's median target price implies 50% upside
Datadog develops observability and security software. Its platform unifies signals from the entire enterprise technology stack (infrastructure, applications, and services) on a single dashboard, making it easier to resolve issues and remediate threats. Its platform features an AI engine (Watchdog) that can detect anomalies, send incident alerts, and perform root cause analysis.
Independent research companies consistently praise Datadog. Gartner sees the company as a leader in digital experience monitoring and observability tools, two markets forecast to grow at approximately 16% annually through 2030. And Forrester Research sees Datadog as a leader in AI for IT operations, a market projected to grow at 15% annually through 2030.
Morgan Stanley analyst Keith Weiss says Datadog has been the top share gainer in its core observability market for several years because IT departments are prioritizing platforms that consolidate a broad range of performance-monitoring tools. Also, Datadog has introduced monitoring tools for AI applications, and it is rolling out AI agents that automate incident resolution and threat detection workflows.
Datadog reported adjusted earnings growth of 20% in the fourth quarter. Admittedly, that makes the current valuation of 60 times earnings look fairly expensive. But the company is spending heavily on research and development to support future growth, which leaves room for earnings growth to accelerate in the future. I doubt shares will deliver a triple-digit return in the next year, but I think patient investors should consider buying the stock.
Most Wall Street analysts who cover Datadog share that opinion. The stock's median target price of $180 per share implies 50% upside from the current share price of $120 per share.
