Generative AI Software Sales Could Soar 2,790%: 2 AI Stocks to Buy Now That Come Highly Rated by Wall Street
Saturday, Nov 9, 2024 1:18 pm ET
The generative artificial intelligence (AI) market is poised for explosive growth, with spending on generative AI software expected to increase by a staggering 2,790% to approach $320 billion by 2032, compounding at a 52% annual rate. This surge in demand is driven by the increasing adoption of generative AI in various industries, such as marketing, sales, and customer service. As AI continues to penetrate these sectors, the demand for generative AI software is expected to skyrocket, presenting significant investment opportunities.
Wall Street analysts have identified two highly-rated AI stocks that are well-positioned to capitalize on this growing demand: Microsoft (NASDAQ: MSFT) and Datadog (NASDAQ: DDOG). Both companies are favored by analysts for their strong competitive positions and potential for significant upside.
Microsoft, the largest commercial software company in the world, is leveraging its strength in business productivity, enterprise resource planning, and cybersecurity verticals to capitalize on the generative AI opportunity. The company's generative AI copilots, which automate tasks in applications like Word and Excel, are already used by nearly 70% of Fortune 500 companies. Microsoft's AI business is on track to surpass an annual revenue run rate of $10 billion next quarter, making it the fastest-growing business in the company's history. Wall Street analysts rate Microsoft a buy, with a median price target of $500 per share, implying 18% upside from the current share price of $425.
Datadog, a leader in observability software, is also benefiting from the proliferation of AI systems and the need for performance monitoring solutions for large language models. The company's AI-driven features, such as LLM Observability and Bits AI, help businesses monitor, analyze, and resolve performance issues across their IT infrastructure and applications. Datadog's customer base increased by 9% in the second quarter, with existing customers increasing their spending by more than 10%. Wall Street analysts rate Datadog a buy, with a median price target of $150 per share, implying 18% upside from the current share price of $127.
While the AI market presents exciting opportunities, investors should be cautious about speculative ventures that lack profitability. The author's core investment values emphasize a focus on sectors that generate stable profits and cash flows, such as utilities, renewable energy, and the REIT sector. An income-focused strategy, known as the Income Method, is particularly suited for retirement portfolios and offers consistent, inflation-protected income. Investments in funds like the Cohen & Steers Quality Income Realty Fund (RQI) provide stable yields and potential for capital gains, while diversified investments in funds like the XAI Octagon Floating Rate & Alternative Income Trust (XFLT) and REITs like AWP and GOOD offer adaptability and reliability. Additionally, investments in reliable income-generating companies like Scotiabank, which offers high dividends and strong institutional stability, can provide a steady stream of income.
In conclusion, the generative AI software market is expected to soar, with Microsoft and Datadog being well-positioned to capitalize on this growing demand. However, investors should maintain a balanced portfolio, focusing on sectors that generate stable profits and cash flows, and consider an income-focused strategy to secure steady returns. By diversifying investments and capitalizing on undervaluations created by market perceptions, investors can build a strong, long-term portfolio that leverages market opportunities to secure steady returns.