Nasdaq Correction: 1 AI Stock Down 45% You'll Wish You'd Bought on the Dip

The Nasdaq correction has sent shockwaves through the tech sector, with AI stocks taking a particularly hard hit. Among the casualties is Datadog (DDOG), a cloud platform company that has seen its stock plummet 45% from its all-time high. But is this a buying opportunity or a sign of deeper troubles ahead? Let's dive in.



First, let's look at the numbers. Datadog's stock has been on a rollercoaster ride, with its price dropping from a high of $150 in 2021 to around $82 today. This decline has been driven by a combination of factors, including broader market sell-offs and concerns about the company's growth prospects.

But despite the recent sell-off, Wall Street analysts remain bullish on Datadog. According to the Wall Street Journal, 47 analysts cover Datadog stock, and the overwhelming majority have assigned it the highest-possible buy rating. In fact, not one analyst recommends selling.

So, what's driving this optimism? For starters, Datadog has been expanding into the AI space, launching an observability tool for large language models (LLMs) last year. This tool helps developers troubleshoot technical issues, evaluate the quality of their outputs, and track costs. As LLMs become bigger and more complex, this tool is becoming increasingly important, paving the way for better AI software and making manual troubleshooting processes far too erroneous.

Datadog has also created another monitoring tool for businesses that use OpenAI's popular LLMs, enabling them to track their consumption so they can allocate their usage budgets more effectively. The use of third-party LLMs is increasing because it can help developers bring AI software to market much faster—and at a reduced cost—compared to creating their own models from scratch.

The company's AI revenue is soaring, generating a record $2.68 billion in total revenue during 2024, which was a 26% increase compared to the previous year. Datadog had 30,000 total customers at the end of 2024, and it said 3,500 of them were using at least one of its AI products. That represented a 75% increase from the start of the year, when 2,000 customers had adopted an AI product.

But it's not all sunshine and roses for Datadog. The company's high valuation and debt levels have raised concerns among some investors. Datadog's price-to-earnings (PE) ratio is currently around 55, which is higher than the industry average. And while the company has a strong balance sheet, its debt-to-equity (DE) ratio is above 1, which could be a red flag for some investors.

Despite these concerns, the long-term growth potential of AI, coupled with Datadog's strong fundamentals and expansion into the AI space, makes it an attractive investment despite the current market volatility. As the AI market continues to grow, companies like Datadog that are at the forefront of this technology are poised to benefit.

In conclusion, while the Nasdaq correction has led to significant declines in AI stocks like Datadog, it also presents a buying opportunity for investors. The long-term growth potential of AI, coupled with Datadog's strong fundamentals and expansion into the AI space, makes it an attractive investment despite the current market volatility. So, if you're looking to buy the dip, Datadog might be the AI stock you wish you'd bought on the dip.