1 AI Super Stock Is Starting to Rebound, but Shares Still Look Cheap

Core Viewpoint - The rise of artificial intelligence (AI) is creating significant wealth on Wall Street, benefiting not only semiconductor stocks but also tech stocks across various subsectors, including Datadog [1] Company Overview - Datadog stock experienced a remarkable increase of over 400% from 2019 to 2021, but faced a decline of 68% in 2022, leaving it more than 35% below its all-time high reached in late 2021 [3][9] - The company provides cloud monitoring services, which are essential for enterprises to avoid operational downtime that can lead to lost revenue and customer dissatisfaction [6] Analyst Sentiment - Datadog has strong ratings from analysts, with 10 recommending it as a strong buy, 28 as a buy, and 8 as a hold, while none rate it as a sell [4] - The average 12-month price target for Datadog shares is nearly $139, representing a potential upside of about 9% from current trading levels [5] AI Impact on Business Model - The use of AI, particularly large language models (LLMs), is becoming increasingly important for organizations, creating a new revenue stream for Datadog as they monitor the performance of these models [7][8] - In the first quarter, approximately 8.5% of Datadog's total revenue came from AI-native customers, up from 3.5% the previous year, indicating significant growth in this area [9] Financial Guidance and Valuation - Management raised its revenue guidance for the year by about $40 million, or 1%, due to the fast-growing AI-related sales [9] - Datadog's current price-to-sales (P/S) ratio is around 16, significantly lower than its peak levels above 60 in 2020 and 2021, and below its long-term average of 28, suggesting it is not overvalued [11][13] Investment Outlook - The stock is showing signs of recovery after a steep decline, with the AI revolution contributing to this rebound and analysts being moderately bullish on the company's future prospects [14][15]