2 Top Tech Stocks to Buy in January

Plenty of technology companies saw solid growth in the past couple of years. Catalysts like strong spending on cloud infrastructure and services related to the growing adoption of artificial intelligence (AI) played a part, and there is a good chance that the trend will continue in 2025.

Global information technology (IT) spending is forecast to increase by 9.3% in 2025 (to $5.74 trillion) as compared to 2024's estimated increase of 7.2%, according to Gartner. The research company adds that software spending could increase at a faster pace of 14% this year to $1.23 trillion on the back of investments in AI-focused projects.

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Meanwhile, the hardware side of the market is also set up for outstanding growth thanks to investments in AI servers and devices. Data center spending, for instance, is expected to jump by 15.5% this year, while spending on devices could accelerate to 9.5% from 6.2% in 2024.

As such, now is a good time to take a closer look at two tech stocks that are on track to take advantage of the increase in IT spending this year. Taiwan Semiconductor Manufacturing (NYSE: TSM) and Datadog (NASDAQ: DDOG) are two names that look like solid buys this month.

1. Taiwan Semiconductor Manufacturing

Popularly known as TSMC, this foundry giant is coming off a terrific 2024. The company's revenue increased 34% last year, which was a big improvement over the 4.5% decline in 2023. TSMC ended the year on a solid note with its revenue for the final quarter rising 39% year over year to $26.3 billion, which was higher than the growth analysts expected.

2025 is likely to be another good year for TSMC considering the higher spending on IT hardware such as cloud infrastructure, and devices such as smartphones and personal computers (PCs). TSMC fabricates chips that are used in all these applications. Advanced Micro Devices, for instance, uses TSMC's fabs to manufacture its central processing units (CPUs) used in PCs. TSMC also fabricates Qualcomm's and Apple's smartphone chips.

TSMC is also the go-to manufacturer of chips for key players in the data center segment such as Nvidia, Broadcom, Micron Technology, and Marvell Technology. The good part is that all these companies expect to clock healthy growth in 2025. Nvidia's revenue, for instance, is expected to jump 52% in fiscal 2026, which will begin from the end of this month. Broadcom expects the addressable market for its custom AI chips and networking processors to jump to a range of $60 billion to $90 billion over the next three years.

That points toward a big jump from its AI revenue of $12.2 billion in the recently concluded fiscal year 2024. Micron Technology, on the other hand, is forecasting a massive increase in the size of the high-bandwidth memory (HBM) market that's deployed in AI processors. Not surprisingly, TSMC has been busy boosting its manufacturing capacity so that it can meet the demand for chips from all these customers.

The foundry giant expects to build 10 new facilities across the globe this year, with most of them expected to be built for manufacturing advanced chips that are in demand from the customers mentioned above. As such, it is easy to see why consensus estimates project TSMC's revenue to increase 26% in 2025 along with a 29% jump in its earnings to $9.05 per share.

Assuming TSMC indeed manages to achieve the estimated earnings target this year and trades at 32 times earnings after a year (in line with the tech-laden Nasdaq-100 index's earnings multiple), its stock price could hit $294. That would be a 41% increase from current levels, suggesting that TSMC could continue to remain a top tech stock in 2025 as well.

2. Datadog

Gartner forecasts a 21.5% increase in public cloud spending by end-users in 2025, up from the 19.2% growth this market recorded last year. This could give Datadog's already impressive growth a nice boost. The company's revenue increased by 27% in the first nine months of 2024 to $1.95 billion, and its fourth-quarter guidance of $711 million suggests that it is on its way to finish the year with $2.66 billion in revenue.

That would be a 25% improvement over its 2023 revenue. Datadog's earnings are forecast to increase by 34% this year to $1.77 per share. The company is known for offering cloud observability and monitoring solutions that help customers gain real-time insights into the performance of their applications, services, and cloud infrastructure.

The demand for these services is expected to grow rapidly thanks to the overall growth of the cloud computing market. More specifically, Datadog estimates that its $51 billion total addressable opportunity in the cloud observability market could increase at a compound annual rate of 11% through 2027, suggesting that the company is scratching the surface of a big opportunity. Additionally, the company anticipates that its addressable opportunity in the cloud security space could jump at an annual rate of 16% through 2027 from last year's level of $21 billion.

The growing adoption of these services explains why Datadog's customer base and customer spending are growing at a nice pace. Datadog ended the third quarter of 2024 with just over 29,000 customers, an increase of almost 9% from the prior year. However, the company saw much stronger growth of 11.5% in the number of customers with an annual recurring revenue (ARR) of more than $100,000.

What's more, Datadog saw a nice jump in the number of products that its customers are using. For instance, the percentage of customers using eight or more of its products in the third quarter of 2024 increased to 12% from 8% in the year-ago period. Meanwhile, there was an increase of 5 percentage points in the number of customers using six or more of its products.

The advent of AI within the cloud computing market is likely to open a solid opportunity to upsell to its large customer base. The company introduced observability products powered by large language models (LLMs) to customers, and it points out that 3,000 customers were already using its AI integrations at the end of the third quarter.

So, the adoption of AI-powered cloud observability solutions is likely to encourage customers to spend more money on Datadog's offerings, and that could pave the way for robust top- and bottom-line growth in 2025 and beyond. Not surprisingly, analysts expect Datadog to maintain 20%-plus top-line growth for the next couple of years.

DDOG Revenue Estimates for Current Fiscal Year data by YCharts

It is worth noting that the company's revenue growth is expected to be higher in 2026 than in 2025. There is a good chance that Datadog will be able to sustain this trend in the long run as well thanks to the huge addressable market it is sitting on, which is why investors looking to buy a tech stock this month should take a closer look at this cloud company.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Datadog, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom, Gartner, and Marvell Technology. The Motley Fool has a disclosure policy.