AI’s Second Wave: Why Now is the Time to Reconsider These Tech Stocks
The artificial intelligence (AI) boom of 2024 and early 2025 propelled tech stocks to unprecedented heights. While the initial fervor has cooled, and some AI-focused companies have faced headwinds, the underlying trend remains powerfully intact. The S&P 500’s gains have been significantly driven by AI innovators, but not all have participated equally. Now, as the market recalibrates, opportunities are emerging to invest in promising AI-adjacent companies at more attractive valuations. Two stocks, The Trade Desk (TTD) and DataDog (DDOG), currently down 30% and 73% respectively from their recent peaks, deserve a closer look.
The Trade Desk: Beyond the Hype, a Solid Foundation
The Trade Desk, a leading demand-side platform (DSP) for connected TV (CTV) advertising, experienced a challenging 2025. Initial setbacks stemmed from internal restructuring and the rollout of its AI-powered Kokai platform. However, the core issue is the perceived threat from Amazon’s (AMZN) aggressive push into the CTV advertising space. Amazon is reportedly undercutting pricing and securing deals with streaming giants like Netflix and Disney.
But is Amazon a true disruptor, or simply another player in a rapidly expanding market? The Trade Desk’s CEO, Jeff Greene, argues the latter. He emphasizes that Amazon focuses on its “walled garden” of owned and operated inventory, while The Trade Desk excels at connecting advertisers to the “open internet.” This unbiased approach, coupled with its sophisticated AI algorithms trained on a vast dataset of advertising campaigns, provides a key competitive advantage.
Pro Tip: Don’t solely focus on the competition. Consider the overall growth of the CTV advertising market. Even if The Trade Desk loses some market share, the rising tide of CTV spending should still benefit the company.
Currently, TTD trades at a forward P/E ratio under 21 and an enterprise value-to-sales ratio under 6 – metrics suggesting it’s undervalued. The company is still projecting mid-teens revenue growth, even in a competitive landscape. This makes it a compelling buy for investors looking ahead to 2026.
DataDog: Observability is the Key to AI Success
DataDog, a monitoring and security platform for cloud applications, initially saw a surge in investor enthusiasm following strong third-quarter earnings in November 2025. However, the stock quickly reversed course, falling 30% amid insider selling and the announcement of Palo Alto Networks’ acquisition of Chronosphere, a competitor.
Despite these short-term pressures, DataDog’s underlying business remains robust. Revenue increased by 28% in Q3, and remaining performance obligations (RPO) – a key indicator of future revenue – jumped by 53%. This demonstrates strong customer demand and a healthy pipeline of future business.
DataDog is also strategically positioned to benefit from the explosion of AI. It already has over 500 customers using its tools to monitor the performance of their large language models (LLMs) and generative AI applications. A recent nine-figure deal with a leading AI company further validates its position in this emerging market.
Did you know? Observability – the ability to understand the internal state of a system based on its external outputs – is crucial for managing the complexity of AI-powered applications. DataDog provides this critical capability.
While DataDog’s valuation remains relatively high (forward P/E of 69, price-to-sales ratio of 14), the company’s growth potential justifies the premium. The recent pullback presents a buying opportunity for investors willing to look beyond short-term volatility.
The Broader Trend: AI Infrastructure and the Data Revolution
Both The Trade Desk and DataDog represent a broader trend: the increasing importance of AI infrastructure. AI isn’t just about algorithms; it’s about the platforms, tools, and data that enable those algorithms to function effectively. As more businesses adopt AI, demand for these supporting technologies will continue to grow.
The cloud computing revolution has created a massive influx of data. This data is the fuel that powers AI, and companies like DataDog are essential for managing and analyzing it. Similarly, The Trade Desk is leveraging AI to optimize advertising campaigns and deliver more relevant experiences to consumers.
The Rise of AI Agents and Automation
DataDog’s BitsAI agents, which can automatically investigate and resolve issues, are a prime example of how AI is being used to automate complex tasks. This trend will accelerate in the coming years, leading to increased efficiency and productivity across various industries.
Semantic SEO and the Future of Search
The Trade Desk’s ability to deliver targeted advertising relies on understanding user intent and context. This is where semantic SEO – optimizing content for meaning rather than just keywords – comes into play. As search engines become more sophisticated, semantic SEO will become increasingly important for driving organic traffic.
FAQ: Investing in AI Stocks
- Q: Are AI stocks still a good investment? A: Yes, but it’s crucial to be selective. Focus on companies with strong fundamentals and a clear path to profitability.
- Q: What are the risks of investing in AI stocks? A: High valuations, intense competition, and rapid technological change are all potential risks.
- Q: How can I diversify my AI portfolio? A: Invest in companies across different segments of the AI ecosystem, such as infrastructure, software, and applications.
- Q: What is a reasonable P/E ratio for an AI stock? A: It depends on the company’s growth rate and profitability. However, be wary of excessively high valuations.
The AI revolution is far from over. While the initial hype may have subsided, the long-term potential remains enormous. By focusing on companies with strong fundamentals, innovative technologies, and a clear understanding of the evolving AI landscape, investors can position themselves for success in the years to come.
Ready to dive deeper? Explore our other articles on cloud computing and digital advertising to learn more about the forces shaping the future of technology.
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