Much like the invention of the internet, the artificial intelligence boom could be the investment opportunity of a lifetime.
JPMorgan Chase CEO Jamie Dimon discussed artificial intelligence (AI) in his recent shareholder letter: “We are completely convinced the consequences will be extraordinary and possibly as transformational as some of the major technological inventions of the past several hundred years: Think the printing press, the steam engine, electricity, computing and the internet.”
Microsoft founder and former CEO Bill Gates shared a like-minded opinion in 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 correct, the artificial intelligence boom could be the investment opportunity of a lifetime.
Here’s why Nvidia (NVDA 3.55%) and Datadog (DDOG 3.66%) are worth buying.
Nvidia: Accelerated computing products for the age of artificial intelligence
Nvidia is the standard-bearer in accelerated computing, a discipline that pairs specialized hardware and software to accelerate complex data center workloads like artificial intelligence. The company is best known for its graphics processing units (GPUs). It holds more than 90% market share in data center GPUs and more than 80% market share in AI chips.
However, Nvidia does a brisk trade outside GPUs. Its portfolio also includes central processing units (CPUs) and networking equipment purpose-built for AI. The former is ramping up toward a multibillion-dollar revenue stream, and the latter has already evolved into a $12 billion revenue stream. Nvidia also has a burgeoning subscription software and cloud services business that recently surpassed an annual run rate of $1 billion.
That 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 always one to two steps ahead of its competitors in terms of performance, and it occupies a unique place in the AI value chain, given that it can supply customers with almost every aspect of an AI data center. Indeed, CEO Jensen Huang recently told analysts, “We literally build the entire data center.”
Nvidia announced first-quarter financial results that beat expectations on the top and bottom lines. Revenue increased 262% to $26 billion, due to particularly strong sales growth in the data center segment, and non-GAAP net income jump 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. That consensus estimate makes its current valuation of 70.5 times earnings seem a little pricey, but not unreasonably so. Investors should start with a very small position and add shares in the event of a significant drawdown.
I’ll end with a quote from Morgan Stanley analyst Joseph Moore: “Bottom line, we think the backdrop warrants AI exposure even amid 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 observability software. Its platform integrates nearly two dozen modules that address several 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 those categories. Its broad portfolio of integrated software is attractive to businesses that want to eliminate point products and consolidate spending.
Datadog has embedded its platform with artificial intelligence capabilities, like anomaly detection to predict problems, root cause analysis to accelerate investigations, and intelligent alerting to streamline remediation. Forrester Research has recognized the company as a leader in AI for IT operations software, and the report noted that “Datadog leads the pack in data insights and visualizations.”
The company reported encouraging financial results in the first quarter. Its customer count climbed 10% to 28,000, and the average spend per existing customer increased more than 10%. In turn, revenue rose 27% to $611 million, and non-GAAP net income jumped 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 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, 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 sales at 25% annually over the next three years. That consensus estimate make its current valuation of 18.6 times sales seem reasonable.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in 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 Motley Fool has a disclosure policy.
