Two AI Stocks to Watch as 2025 Progresses

AI stocks are struggling early in 2025; however, Datadog and Confluent are poised for potential growth driven by increased AI adoption. Analysts predict significant economic benefits from AI, suggesting a positive outlook for these companies as we approach the second half of the year.

Artificial intelligence stocks have had a tough start to 2025. Investors, looking to cash in on previous gains from the rapid growth in AI during 2023 and 2024, are stepping back. The current climate is shaky, influenced by the ongoing trade war and doubts about future AI spending after the release of DeepSeek’s budget-friendly AI model. Still, some experts are keeping the faith, suggesting that AI adoption may still be in its early days and positioned for long-term growth. For instance, Goldman Sachs estimates AI technology could boost global GDP by a staggering $7 trillion. McKinsey believes the numbers could be even higher, forecasting AI contributions to annual global economic growth could be between $17.1 trillion and $25.6 trillion.

For those betting on an optimistic future, two AI stocks stand out as having potential to rise significantly in the latter half of 2025. First up is Datadog (DDOG), a company that specializes in monitoring and managing the performance and security of cloud applications. Their unique brand of AI observability has gained traction, especially since they noticed a surging customer interest in their next-gen AI solutions. The company is on track to capitalize on the growing demand for tools that enhance performance and lower operational costs of AI models.

Datadog recently revealed that over 4,000 customers are using its AI integrations, a number that has seen a remarkable increase—doubling year over year. Additionally, the uptake of their large language model observability solution has also surged, showing that this company is clearly making waves in the AI space. With annual revenues from AI services in the cloud expected to quadruple by 2029, Datadog anticipates strong demand ahead. After raising its forecasts for 2025, the company’s growth is anticipated to accelerate, with its stock already up by nearly 16% over the past month.

The second stock to keep an eye on is Confluent (CFLT), which recently weathered a significant decline—down almost 19% in 2025 so far. Despite current setbacks, including underwhelming quarterly results, the company reported a revenue boost that suggests its times could soon change. Confluent operates a powerful data-streaming platform that’s crucial for many businesses developing AI solutions. By enabling companies to harness real-time data, the platform is becoming a backbone for many generative AI applications.

Confluent’s customer base has begun growing steadily; they reported 6,140 customers by the end of Q1, marking a 20% annual increase. Moreover, their existing clients are spending more, signaling stability amid uncertainty. Analysts expect their earnings growth to pick up from 24% this year to 31% in 2026, especially if AI adoption continues to gain steam. Many experts believe Confluent’s figures could outperform its cautious forecasts, driving its stock price up.

Currently, the 12-month price forecast for Confluent sits at $28, indicating a possible 28% increase from its current valuation. With developments in the AI landscape, there’s a chance the company could reach this mark as we head into the second half of 2025.

AI stocks may have stumbled at the start of 2025, but they’re still contenders for major returns. Companies like Datadog and Confluent could be in for a significant upward shift as AI adoption accelerates. With a surge in customer interest and projected economic contributions from AI, the latter half of the year could prove fruitful for these two players in the tech arena.

Original Source: www.fool.com