JPMorgan Chase CEO Jamie Dimon discussed artificial intelligence (AI) in his recent shareholder letter: “We fully believe the consequences will be extraordinary and potentially as transformative as some of the most important technological inventions of the past hundreds of years: think of the printing press, the steam engine, electricity, computers and the Internet.”
Microsoft founder and former CEO Bill Gates shared a like-minded 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.
This is why Nvidia (NASDAQ: NVDA) And Data hound (NASDAQ:DDOG) are worth buying.
Nvidia: accelerated computing products for the age of artificial intelligence
Nvidia is the standard-bearer in 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 (GPUs). It has more than 90% market share in data center GPUs and more than 80% market share in AI chips.
However, Nvidia does a brisk business outside of GPUs. The portfolio also includes central processing units (CPUs) and networking equipment purpose-built for AI. The former is growing toward a multi-billion dollar revenue stream, and the latter has already evolved into a $12 billion revenue stream. Nvidia also has a fast-growing subscription software and cloud services business, which recently surpassed a $1 billion annual run rate.
That full-stack strategy (i.e. hardware, software and services) is particularly formidable when combined with Nvidia’s technological prowess and ability to innovate. The company is consistently one to two steps ahead of the competition in performance and occupies a unique place in the AI value chain as it can offer customers virtually every aspect of an AI data center. CEO Jensen Huang recently told analysts, “We are literally building the entire data center.”
Nvidia reported first-quarter financial results that exceeded expectations at both the top and bottom lines. Revenue rose 262% to $26 billion, driven by particularly strong revenue growth in the data center segment, and non-GAAP net income rose 461% to $6.12 per diluted share.
Wall Street expects Nvidia to grow earnings per share 31.7% annually over the next three to five years. That consensus estimate makes the current valuation of 70.5 times earnings seem a bit pricey, but not unreasonable. Investors should start with a very small position and add shares in case of a significant decline.
I end with a quote from Morgan Stanley analyst Joseph Moore: “The bottom line is that we think the background warrants exposure to AI, even under extreme enthusiasm – and Nvidia remains the clearest way to get that exposure.”
Datadog: performance monitoring software for the age of artificial intelligence
Datadog specializes in observation software. The platform integrates nearly twenty modules targeting different 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 many of these categories. The broad portfolio of integrated software is attractive to companies looking to eliminate point products and consolidate expenses.
Datadog has embedded its platform with artificial intelligence capabilities such as anomaly detection to predict problems, root cause analysis to accelerate investigations, and intelligent alerts to streamline remediation. Forrester research has recognized the company as a leader in AI for IT operations software, and the report notes that “Datadog is at the forefront of data insights and visualizations.”
The company reported encouraging first-quarter financial results. Customer numbers increased by 10% to 28,000, and average spend per existing customer increased by more than 10%. In turn, revenue rose 27% to $611 million, and non-GAAP net income rose 91% to $0.44 per diluted share. Datadog is well positioned to maintain that momentum as AI makes IT environments more complex, creating a greater need for observability software.
The Datadog platform integrates with the entire AI technology stack to provide performance monitoring across all infrastructure, models and applications. In addition, the company recently introduced Bits AI, a generative AI assistant that streamlines research workflows by answering questions in natural language, automating certain tasks and suggesting code solutions.
Last year, Wolfe Research analyst Alex Zukin 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 revenue 25% annually over the next three years. That consensus estimate makes the current valuation of 18.6 times sales seem reasonable.
Should You Invest $1,000 in Nvidia 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 and recommends positions in Datadog, JPMorgan Chase, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool 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
