Artificial intelligence, or AI, is expected to be the next megatrend attracting billions of dollars in investments in the upcoming decade. Given the AI market is forecast to surpass US$1 trillion by 2030, it makes sense to identify companies that enjoy an early-mover advantage allowing investors to benefit from exponential gains.
So, let’s see which AI stock is a better buy between Datadog (NASDAQ: DDOG) and Docebo (TSX: DCBO) at current prices.
The bull case for Datadog stock
Datadog is the observability and security platform for cloud applications. Its AI-powered SaaS (software-as-a-service) platform integrates and automates infrastructure monitoring, application performance monitoring, log management, and other capabilities.
Datadog is used by enterprises across industries to enable digital transformation and cloud migration, which drives collaboration among internal teams, thereby increasing productivity across verticals.
In the second quarter (Q2) of 2023, Datadog reported sales of US$509.5 million, an increase of 25% year over year. Its adjusted operating income stood at US$106.5 million, indicating a margin of 21%. The company reported an operating cash flow of US$153.2 million and a free cash flow of US$141.7 million while ending the quarter with US$2.2 billion in cash.
The number of customers spending at least US$100,000 annually on the Datadog platform increased by 24% to 2,990, up from 2,420 in the year-ago period, which indicates robust customer engagement rates.
Datadog also announced a new LLM (large language model) observability solution and over a dozen new integrations allowing companies to build LLM-based applications and monitor or troubleshoot LLM stacks.
The company also announced Bits AI, “a new Generative AI-based assistant that learns from customers’ observability data and helps engineers resolve application issues in real time.”
Datadog forecasts sales between US$2.05 billion and US$2.06 billion, which suggests the tech stock is priced at 14 times forward sales. Analysts tracking Datadog stock expect it to return 15% in the next 12 months.
The bull case for Docebo stock
Down 57% from all-time highs, Docebo (TSX: DCBO) stock is valued at $1.7 billion by market cap. It creates software solutions and support systems that help customers teach and train their employees.
While conventional learning management systems and enterprise learning tech have directed learning through formal courses pushed from the “top down.” Alternatively, Docebo aims to integrate formal, social and experiential learning modalities powered by AI.
In a post-pandemic world, customers have begun to recognize corporate e-learning solutions are a core part of their strategy for success, allowing Docebo to increase sales from $55 million in 2019 to $191 million in 2022. Analysts forecast sales to touch $241 million in 2023 and $300 million in 2024.
This rapid expansion in the top line will allow Docebo to increase adjusted earnings from $0.02 per share in 2023 to $0.67 per share in 2024. DCBO stock also trades at a discount of 40% to consensus price target estimates.
The Foolish takeaway
Both Docebo and Datadog have the potential to outpace the broader markets in the upcoming decade due to their expanding customer base and improving profit margins. But if I have to choose a winner between the two, I will place my bets on Datadog due to its higher profitability and attractive cash flow yield.
