Key Points Summary Morgan Stanley analysts predict artificial intelligence (AI) sales across cloud and software sectors will surge over 600% in the next three years, surpassing $1 trillion annually by 2028. Alphabet, the world’s largest adtech company, leverages generative AI tools to enhance user engagement, while Datadog excels in AI-powered IT operations with observability software that supports generative AI applications. Capital expenditure on AI contributed more than one percentage point to U. S. economic growth in early 2025, overtaking consumer spending as the main driver. Evercore analyst Julian Emanuel describes AI as the most transformative technology since the internet, signaling a bullish outlook. Investors can capitalize on this trend by considering shares of Alphabet (NASDAQ: GOOGL, GOOG) and Datadog (NASDAQ: DDOG). Analysts’ sentiment is mostly positive: among 73 analysts, Alphabet’s median price target is $330, implying a 19% upside from its current price of $278. For Datadog, 46 analysts have a median target of $170, suggesting a 10% increase over its current $155. Below is a closer look at these AI stocks: 1. Alphabet Alphabet dominates global adtech by engaging users and collecting consumer data through platforms like Google Search and YouTube. The search market is evolving toward AI tools such as Perplexity and ChatGPT, yet Alphabet is advancing with its own generative AI solutions. Additionally, Google operates the third-largest public cloud infrastructure, accounting for 13% of cloud infrastructure platform services (CIPS) revenue in Q3 2025, up slightly from early-year figures. As a leader in AI infrastructure and large language models, Alphabet is positioned to gain market share amid rising AI demand. Alphabet’s Q3 financials surpassed expectations: revenue rose 16% to $102 billion, an acceleration from 15% growth the previous year, and GAAP earnings increased 35% to $2. 87 per diluted share. CFO Anat Ashkenazi cited robust demand for AI infrastructure, including custom chips and Gemini AI models.

Wall Street forecasts 15% annual earnings growth for Alphabet over the next three years, supporting a reasonable valuation at 27 times earnings. Investors may consider a modest position in this AI leader. 2. Datadog Datadog offers a suite of roughly two dozen observability products that monitor IT infrastructure and applications, featuring an AI engine called Watchdog which automates anomaly detection, incident alerts, and root cause analysis to accelerate problem resolution. Recognized by Forrester Research as a leader in AI for IT operations and by Gartner for observability platforms that support generative AI workloads, Datadog stands to benefit from AI adoption. In Q2 2025, Datadog reported strong results: revenue climbed 28% to $827 million, and non-GAAP earnings rose 7% to $0. 46 per share. CEO Olivier Pomel highlighted advances in AI-driven agents for incident response, coding, and security event triage. Analysts expect 19% annual adjusted earnings growth through 2028, but the current valuation at 84 times earnings appears high. However, consistent earnings beats by an average of 15% over the past six quarters and anticipated cost savings and R&D moderation suggest potential understated upside. Investors with a 3–5 year horizon might start with a small position, increasing exposure if the stock drops 15% or more. Investment Consideration: Should You Invest $1, 000 in Alphabet Now? While Alphabet is a strong AI play, The Motley Fool’s Stock Advisor team recently highlighted 10 stocks they prefer over Alphabet for potential superior returns. Historical recommendations from this list include Netflix and Nvidia, which yielded extraordinary gains from initial $1, 000 investments. The Stock Advisor’s average total return stands at 1, 076%, significantly outperforming the S&P 500’s 195%. Interested investors can access the latest top 10 list by joining Stock Advisor. *Stock Advisor returns as of November 3, 2025. Image source: Getty Images.