Tech Sell-Off: 2 Growth Stocks Investors Might Regret Not Buying on the Dip

The iShares Semiconductor ETF is down more than 20% from its June peak amid concerns about data-center funding costs and future AI demand, creating a potential buying opportunity if the broader sell-off deepens. Datadog grew Q2 revenue 36% and raised its 2026 revenue forecast by $140 million to a $4.46 billion midpoint, but trades at 24.3 times sales versus a three-year average of 17.7. Palo Alto Networks reported $9 billion in next-generation security ARR at fiscal 2026 year-end, up 63% year over year, and targets more than $20 billion by fiscal 2030; its 22.6 times sales valuation also exceeds its three-year average of 15.6.

Analysis

The key distinction is monetization, not AI exposure. Datadog’s usage-linked observability can benefit as workloads expand, but the same data-center cost pressure driving a semiconductor de-rating can prompt customers to optimize telemetry and cloud spend. Rising AI activity is not proof of proportional paid usage; confirm it in customer growth, net retention, and revenue per customer. Palo Alto’s security case is less directly tied to compute volumes, but reported NGS ARR is a forward-selling indicator, not equivalent to recognized revenue or incremental AI revenue. Platform consolidation may help it displace point products, while also intensifying pricing and execution pressure against cybersecurity rivals.

Over days to weeks, broad de-risking can compress both stocks regardless of company-specific execution. Over 1–3 months, watch guidance, retention/consumption metrics, and evidence that NGS growth converts to revenue; over 6–18 months, the question is whether AI security and observability budgets are incremental or substituted from existing software budgets. The contrarian opportunity is to avoid treating either as a semiconductor proxy: PANW may prove relatively resilient, but its premium valuation still leaves room for multiple compression. DDOG has more direct exposure to customers’ cloud-optimization choices. No compelling entry follows from the article alone; verify current valuation and operating metrics before acting.

Key Decisions for Investors

• Keep both names on a pullback watchlist rather than buying solely on AI product claims. Consider staged DDOG entry only after a material de-rating and if net retention and usage-based growth remain firm; cut the thesis if guidance or customer expansion weakens.
• Prefer PANW over DDOG as a relative-quality expression if market stress persists, but do not treat NGS ARR growth as proof of near-term revenue acceleration. Reassess after results for conversion, renewal strength, and evidence of incremental rather than shifted security spending.
• Avoid using semiconductor weakness alone as a catalyst to buy either stock: a prolonged data-center funding or demand slowdown could pressure DDOG usage and risk appetite across both names. Track enterprise cloud-spending commentary and capex plans for confirmation.
• Falsifiers: sustained deterioration in DDOG retention or consumption, PANW NGS growth/conversion materially slowing, or either company cutting guidance. A broad-market rebound without valuation normalization would also weaken the case for waiting on a correction.