Investment manager Ark Invest has predicted that the rise of artificial intelligence (AI) could lead to a significant boost in software sales, projecting a potential increase from $1.1 trillion to $13 trillion by 2030. This forecast implies an annual growth rate of nearly 50%, indicating a potential overall spending increase of 1,080% by the end of the decade. In light of this colossal opportunity, investors are advised to consider software stocks Datadog and ServiceNow, both of which have received high ratings from Wall Street analysts.
Datadog, a company specializing in observability software, offers a platform encompassing various applications that assist businesses in monitoring, analyzing, and troubleshooting performance issues across their IT infrastructure. The company’s AI engine, Watchdog, expedites incident resolution by detecting anomalies, providing insights, and automating root cause analysis. Gartner, a renowned consultancy, has recognized Datadog as a leader among observability platform vendors for the fourth consecutive year, noting its appeal to enterprises seeking best-of-breed solutions. Additionally, Datadog’s strong presence in other software verticals, such as cloud infrastructure monitoring and log monitoring, further enhances its competitive advantage.
ServiceNow, on the other hand, provides software that digitizes business processes. While primarily known for its IT applications, the company’s platform also includes products for customer workflows, employee workflows, creator workflows, and finance and supply chain workflows. ServiceNow has been incorporating AI into its software for several years, with features like predictive intelligence, AI search, and virtual agents. The company is a market leader in IT service management, IT asset management, and AI for IT operations software. Analysts have also acknowledged its leadership in other verticals, including multicloud and hybrid cloud management, digital process automation, and customer service solutions.
Both Datadog and ServiceNow have reported strong financial results in recent quarters. Datadog’s second-quarter revenue increased by 27% to $645 million, surpassing Wall Street estimates, while ServiceNow recorded a 22% revenue growth to $2.6 billion. Wall Street analysts have varying earnings estimates for both companies, considering their ongoing investments in product development and marketing. Datadog’s stock, valued at 19.7 times sales, is considered fair given its relatively young age and untapped market potential. ServiceNow, with a valuation of 72 times adjusted earnings, may appear pricey, but its projected growth and expanding addressable market make it an attractive investment.