2 Artificial Intelligence (AI) Stocks That Could Soar in the Second Half of 2025

AI stocks have underperformed in 2025 amid trade war uncertainty and concerns over AI spending, but analysts remain optimistic about the long-term growth potential, citing projections of a $7-$25.6 trillion boost to global GDP; Datadog (DDOG) and Confluent (CFLT) are two AI-related stocks highlighted for potential growth in the second half of 2025, with Datadog benefiting from increased customer adoption of its AI monitoring tools and Confluent poised to capitalize on the demand for real-time data streaming in AI applications despite recent underperformance and cautious guidance.

Analysis

Artificial intelligence stocks have experienced a period of consolidation in 2025, with investors crystallizing profits after significant gains in 2023 and 2024, compounded by uncertainties from a tariff-fueled trade war and questions regarding AI spending trajectories following DeepSeek's introduction of a cost-effective AI model. Despite these near-term headwinds, long-term projections for AI's economic impact remain robust, with Goldman Sachs forecasting a potential $7 trillion (or 7%) increase in global GDP, and McKinsey estimating an annual contribution of $17.1 trillion to $25.6 trillion. Against this backdrop, Datadog (DDOG) has demonstrated strong momentum in its AI-related offerings; its AI integrations are now used by over 4,000 customers, a figure that doubled year-over-year, and adoption of its LLM observability solution doubled in six months. AI-specific customers contributed 6 percentage points to Datadog's year-over-year revenue growth last quarter, leading the company to raise its full-year 2025 forecast, and its stock has risen nearly 16% in the past month. Industry forecasts support this, with Straits Research projecting 34% annual growth for the LLM market through 2033 and MarketsandMarkets expecting a quadrupling of AI cloud services revenue between 2024 and 2029. Conversely, Confluent (CFLT) has seen its stock decline nearly 19% in 2025 due to cautious forward guidance attributed to macroeconomic uncertainties, despite reporting increased revenue and earnings. Confluent's data-streaming platform is positioned to benefit from AI proliferation, enabling real-time data processing for generative AI. The company grew its customer base by 20% year-over-year to 6,140 in Q1 and maintained a healthy dollar-based net retention rate of 117%. While current guidance suggests 19-20% revenue growth for 2025, analysts anticipate earnings growth could accelerate from 24% this year to 31% in 2026, with a consensus 12-month price target of $28, implying a 28% upside.

Key Decisions for Investors

• Investors should assess the current pullback in AI stocks, considering the contrast between short-term profit-taking and market uncertainties against strong long-term growth projections for the AI sector.
• For Datadog, monitor the sustained adoption of its AI observability tools and its ability to meet or exceed its raised 2025 guidance, as these factors are critical for justifying its recent stock appreciation and future growth.
• Confluent's recent stock underperformance may present a buying opportunity if investors believe in its capacity to leverage AI-driven demand for its data-streaming services and surpass its conservative guidance, though macroeconomic headwinds warrant continued attention.
• Carefully evaluate the specific revenue contributions from AI initiatives within these companies and weigh the potential for outperformance against stated guidance and analyst expectations, particularly given the broader optimistic forecasts for AI market expansion.