2 Extraordinary Artificial Intelligence (AI) Stocks Down 30% and 73% to Buy Before They Turn Around in 2026

The Trade Desk and DataDog have both seen sharp share pullbacks despite remaining leaders in fast-growing markets: The Trade Desk’s revenue rose 20% through the first nine months of 2025 (Q3 +18%, vs. 27% a year ago), its stock is down ~73% from a late‑2024 high, and valuation sits at a forward P/E under 21 and EV/sales under 6 amid competitive pressure from Amazon and a December reorganization/transition to the Kokai platform. DataDog reported Q3 revenue growth of 28% and a 53% rise in remaining performance obligations, counts over 500 native AI customers and a nine‑figure AI deal, yet its stock is ~30% below the post‑earnings high amid insider selling and increased competition after Palo Alto’s Chronosphere acquisition; forward P/E ~69 and P/S ~14. Both names are presented as long‑term growth opportunities with near‑term risks that could create buying opportunities for investors focused on AI and observability secular growth.

Analysis

Market structure: Amazon (AMZN) and vertically integrated platforms win short-term CTV ad share by undercutting pricing; publishers/streamers (NFLX, DIS) capture higher yield from direct deals while open-internet DSPs like The Trade Desk (TTD) face pricing pressure. Observability demand (DataDog, DDOG) is structurally expanding with cloud & LLM adoption—TAM rising; competition (Palo Alto Networks/Chronosphere) compresses margins but does not eliminate growth. Cross-asset: expect higher equity idiosyncratic vol for TTD/DDOG, modest widening in IG credit spreads for adtech names if ad budgets slow, and elevated option skew; macro FX/commodities impact is minimal.

Risk assessment: Tail risks include antitrust action versus Amazon or restrictive ad-privacy regulation that could shrink addressable inventory (high impact, 6–24 months). Operational tail: failed Kokai rollout or major client defections at TTD within 3–9 months; DDOG tail: loss of a nine‑figure customer or rapid consolidation lowering pricing power. Hidden dependency: both rely on sustained advertiser/cloud spend—a 3–5% GDP slowdown could cut ad/cloud budgets and reduce revenue growth by ~5–10% annually. Key catalysts: TTD Q4 guidance (next 30–60 days) and DDOG RPO-to-ARR conversion updates (next 90 days).

Trade implications: Valuation gap creates asymmetric opportunities—TTD trades like growth de-risked (forward P/E <21, EV/S <6) so a staged long for 12–18 months is viable; DDOG is high multiple (fwd P/E ~69) but backed by +28% revenue and RPO +53%, so buy-conviction should be smaller and tied to customer metrics. Use directional equity plus option structures to size risk: prefer LEAPS or call spreads to capture multi-quarter re-rating while limiting downside. Rotate modestly out of adtech beta into cloud/observability and AI-infrastructure exposure (NVDA, DDOG) over 3–12 months.

Key Decisions for Investors

• Establish a 2–3% portfolio long position in TTD (12–18 month horizon). Add to 4–5% if EV/S falls below 5 or forward P/E drops under 18, or if next two quarters show revenue stabilization to mid‑teens. Use a hard stop-loss at 30% below entry to limit execution risk.
• Initiate a 1.5–2% long position in DDOG (12 months) funded from cash; plan to add 0.5–1% on any pullback to price/sales ≈10 or forward P/E ≈45. Take profits if forward P/E compresses to ~35 or if RPO growth decelerates two quarters in a row.
• Implement options hedged-leverage: for TTD buy 9–12 month call spreads sized to 1% notional (buy ~25-delta LEAP call, sell ~10-delta further OTM) to cap cost while keeping upside. For DDOG, buy 12-month 30-delta LEAPS calls equal to 0.5–1% notional and finance by selling 60-day calls monthly (covered-call overlay) to harvest premium if holding shares.
• Execute a small relative-value pair: long DDOG 1% vs short TTD 0.6% (6–12 month horizon) to express rotation from adtech to cloud/observability while tilting neutral to broad tech beta. Trim the pair if DDOG insider selling accelerates or if PANW integration of Chronosphere shows >20% better unit economics than expected.
• Trigger-based risk control: monitor Amazon/streamer deal flow and regulatory filings over next 30–90 days; if Amazon secures exclusive or effectively exclusive ad deals with >3 major streamers, reduce TTD exposure by 50% within one week of confirmation.