Stock Market Correction: 2 Brilliant AI Stocks Down 45% and 48% to Buy Before They Soar, According to Wall Street

The S&P 500 (SNPINDEX: ^GSPC) tumbled as much as 19% from its high during the recent stock market rout. The benchmark index rebounded more than 9% on April 9 when President Donald Trump announced a 90-day delay on the reciprocal tariffs he unveiled a week earlier, but it dropped sharply again on April 10 and remains firmly in correction territory at 15% below its record high.

Of course, the stock market may fall even further if the Trump administration proceeds with the tariffs after the postponement expires, but Wall Street still thinks AppLovin (NASDAQ: APP) and Datadog (NASDAQ: DDOG) are oversold, as detailed below.

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• AppLovin stock is 48% below its record high. But among the 31 analysts that follow the company, the median target price is $550 per share. That implies 108% upside from the recent share price of $264.
• Datadog stock is 44% below its record high at. But among the 47 analysts that follow the company, the median target price is $160 per share. That implies 72% upside from the recent share price of $93.

Here's what investors should know about AppLovin and Datadog.

AppLovin: An ad tech company that uses AI to target mobile and CTV campaigns

AppLovin develops ad tech software that enables developers to market and monetize their applications across mobile and connected TV (CTV) campaigns. Also, the company is currently beta testing a similar product for e-commerce brands. In both cases, its software leans on an artificial intelligence (AI) engine called Axon to match advertising demand with publisher inventory.

Importantly, AppLovin has put a great deal of time and effort into building its Axon recommendation engine. It began acquiring game studios several years ago to train the underlying machine learning models responsible for optimizing targeting. The company has since released two versions of Axon, and advancements made along the way have led to increased advertiser spending and strong financial results.

Indeed, AppLovin reported fourth-quarter financial results that crushed estimates on the top and bottom lines. Revenue increased 44% to $1.4 billion and GAAP earnings soared 253% to $0.49 per diluted share. Notably, management highlighted strength in the nascent e-commerce advertising product, which has scaled to a billion-dollar run rate in mere months.

The company is also piloting its ad tech platform with advertisers in other verticals. "This opens up a massive opportunity as there are over 10 million businesses worldwide who advertise online that could eventually use our platform profitably. By delivering incremental value, we position ourself as an engine for growth," CEO Adam Foroughi told analysts on the fourth-quarter earnings call.

Wall Street expects AppLovin's earnings to increase 47% in 2025. That makes the current valuation of 59 times earnings look reasonable, especially when AppLovin consistently beat the consensus earnings estimate in the last six quarters. Investors with a time horizon of at least three years should feel comfortable buying a position today.

Datadog: A software company that provides monitoring tools for AI applications

Datadog is a leader in observability and digital experience monitoring software. Its platform includes two dozen performance monitoring products that helps businesses keep critical applications and infrastructure functioning properly. Those software modules are built on an artificial intelligence layer that automatically issues alerts and insights that accelerate incident investigation.

Observability software should become increasingly important as technologies like cloud computing and AI make infrastructure more complex. Datadog is leaning into that opportunity with LLM Observability, which is performance monitoring software designed for large language models (LLMs) and generative AI. It has also added integrations at every layer of the AI computing stack: infrastructure like Nvidia GPUs, databases like MongoDB, and development tools like Amazon SageMaker.

Datadog reported strong fourth-quarter financial results that beat expectations on the top and bottom lines. Customers increased 10% to 30,000, and the average spend per existing customer climbed more than 10%. In turn, revenue rose 25% to $738 million and non-GAAP net income increased 11% to $0.49 per diluted share. However, management provided full-year guidance that disappointed investors.

Notably, the company expects earnings to decline 8% in 2025 as headcount expands in areas like sales and marketing, and research and development. While those investments will be a headwind in the short term, management says they will increase efficiency and profitability in the long term. So, investors should look past the weak earnings forecast for the current year.

With that in mind, Datadog stock currently trades at 12.4 times sales, a material discount to the three-year average of 18.6 times sales. That creates an excellent buying opportunity for patient investors.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon, AppLovin, Datadog, MongoDB, and Nvidia. The Motley Fool has a disclosure policy.