Uncovering the Hidden Gems: Innodata and Datadog's Untapped Potential

In the ever-evolving world of technology, the spotlight often shines brightly on the latest and greatest, leaving some promising players in the shadows. While Palantir's (PLTR -2.43%) meteoric rise has captivated investors, two other AI-driven companies, Innodata (INOD 0.03%) and Datadog (DDOG -0.43%), might deserve a closer look. These under-appreciated stocks are poised to deliver impressive growth, potentially outperforming the market darling in the near future.

Unlocking the Untapped Potential of Innodata and Datadog

Innodata: From Slow-Growth to Hyper-Growth

Innodata, a company that has been in the business since 1993, has undergone a remarkable transformation. Once known for its anemic growth, the company has now emerged as a rising star in the AI-driven services landscape. Innodata's revenue has accelerated, growing at a compound annual growth rate (CAGR) of 12% from 2019 to 2023, and analysts expect an even more impressive CAGR of 38% from 2023 to 2026. This sudden growth spurt can be attributed to Innodata's strategic pivot into the world of generative AI, where it has secured master service agreements with three of the "Magnificent Seven" tech giants and is steadily expanding its relationships with two others.Innodata's ability to leverage its expertise in digital information management and its newfound focus on generative AI services have positioned the company for a remarkable turnaround. Analysts expect the company to turn profitable in 2024 and nearly double its annual earnings per share (EPS) by 2026. Despite these impressive growth projections, Innodata's stock trades at a relatively modest valuation of 31 times forward earnings and 2 times next year's sales, making it an intriguing option for investors seeking an undervalued AI-driven play.

Datadog: Streamlining IT with Generative AI

Datadog, a leading provider of real-time data monitoring and analytics solutions, has also caught the attention of savvy investors. The company's revenue grew at a CAGR of 67% from 2019 to 2022, as it successfully expanded its customer base, with the number of large customers (generating over $100,000 in annual recurring revenue) more than tripling during that period.While Datadog's growth slowed in 2023, with revenue rising 27% and the number of large customers increasing by 15%, the company has managed to turn profitable for the year. Analysts still expect Datadog's revenue to grow at a CAGR of 24% from 2023 to 2026, with its EPS increasing at a CAGR of 77%. These growth rates are comparable to Palantir's, but Datadog trades at a more reasonable valuation of 55 times its forward-adjusted earnings and 11 times next year's sales.Datadog's unique approach to data monitoring and analytics, which breaks down silos and simplifies IT troubleshooting, has been further enhanced by the integration of generative AI tools and chatbots. This innovative use of AI technology positions Datadog as a compelling option for investors seeking exposure to the growing demand for data-driven solutions in the enterprise space.

Outperforming the Market Darling: Palantir's Challengers

While Palantir's recent success has been undeniable, with its revenue growth, margin expansion, and profitability surge, its stock is currently trading at a premium valuation. At more than 70 times its forward adjusted earnings and 20 times next year's sales, Palantir's stock is priced for perfection, leaving little room for error.In contrast, Innodata and Datadog offer investors the opportunity to gain exposure to the AI-driven technology sector at more reasonable valuations. Innodata's transformation into a hyper-growth AI services provider and Datadog's innovative approach to data monitoring and analytics, combined with their attractive valuations, make them compelling alternatives to the market darling.As the technology landscape continues to evolve, investors would be wise to look beyond the headlines and uncover the hidden gems that may offer greater long-term potential. Innodata and Datadog, with their unique value propositions and promising growth trajectories, could very well outshine the more celebrated Palantir in the months and years to come.