Back in the late 90s, the dot-com boom became the ultimate cautionary tale of tech hype gone too far. Enthusiasm for the new digital economy sent internet companies soaring, until the bubble inevitably burst. Fast forward to today, and the explosive rise of AI inevitably invites comparisons.
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Yet, this time feels different. AI isn’t a niche story confined to one corner of the tech world; it’s reshaping industries across the board, with changes that appear built to last for decades rather than years.
The numbers back up that durability. UBS’s Chief Investment Office projects that AI could one day generate as much as $1.5 trillion in annual revenues. Although the industry is still ramping up toward that figure, the goal is within sight. Heavy capital expenditures – some $780 billion cumulatively since 2022 – may seem daunting, but they look justifiable in the context of those future returns.
UBS summed it up in a recent note, writing: “We remain optimistic about the potential for AI to continue to surpass expectations over time. The AI trend makes long-term investment increasingly important, and we recommend a balanced positioning across tech industries… While we think investors need to be mindful of the risk of a period of ‘capex indigestion’ following several years of robust spending from major tech companies, we continue to believe that exposure to AI will prove key to portfolio growth over the medium and longer term.”
And UBS is putting weight behind that conviction. Its analysts have highlighted two AI-focused stocks they believe are especially well-positioned right now; both, according to the TipRanks database, are rated as Buys on the Street too.
Datadog, Inc. (DDOG)
We’ll start with Datadog, an NYC-based tech company that has been specializing in real-time data analytics since 2010. The company’s Bits AI provides users with a suite of AI-powered tools, apps, and automations capable of developing, monitoring, and securing data workflows. Bits is able to investigate alerts, suggest fixes in the code, review security systems, and even act on external systems, all as an independent agent. The system allows its users to work at any scale, and to locate and resolve data and security issues with speed and accuracy.
The use of AI tools provides a solid enhancement to Datadog’s core business in cloud and data monitoring. The company’s platform, with the full set of tools and apps available through subscriptions, is designed to monitor systems infrastructure, app performance, access logs, real users, workloads, and data usage. This is the day-to-day work of data management and security, and AI has transformed this industry, allowing for automation of many of these vital tasks.
Using Datadog’s services, customers get a big-picture, real-time view of their applications, their workings, and their data management systems. This is no mean feat, and Datadog’s success has built for the company a solid reputation as a top-tier data firm. Along with that, Datadog has assembled a customer base that could be a ‘who’s who’ of Wall Street’s heavy hitters, featuring names like Samsung, Shell, PayPal, Nasdaq, and Draft Kings. Datadog currently has a market cap of $46 billion and generated $2.68 billion in revenue last year, for a 26% year-over-year gain.
The company remains on track to continue posting revenue gains. In its 2Q25 report, the last released, Datadog reported quarterly revenue of $827 million, up 28% year-over-year and $35.86 million better than had been expected. The company’s bottom-line earnings of $0.46 by non-GAAP measures beat the forecast by a nickel. In a metric that bodes well for future positive results, the company reported a strong year-over-year gain – from 3,390 to 3,850 – in customers with more than $100,000 in annual recurring revenue (ARR).
UBS analyst Karl Keirstead is impressed by Datadog’s recent growth and by its potential to keep up that growth in coming quarters. He notes that the company has a solid base of quality customers, among other assets. Keirstead says, “Datadog growth is being lifted by having one of the largest exposures to the emerging ‘AI native’ customer segment – mostly OpenAI – in the software sector, second only to Microsoft Azure. While growth in the other 89% of revs from ‘core’ enterprises was relatively stable at ~18% (slight deceleration), net we conclude that the OpenAI exposure is a good thing (even if it creates concentration/churn risk) and that the total revs growth acceleration to 28% in 2Q25 from 25% in 1Q25 supports a constructive view on the stock.”
The 5-star analyst goes on to rate DDOG as a Buy, and he sets a $165 price target that suggests that shares will gain 25% in the next 12 months. (To watch Keirstead’s track record, click here)
Datadog’s Strong Buy consensus rating is based on 37 recent analyst reviews, which include 30 Buys, 6 Holds, and 1 Sell. The stock is selling for $131.78, and its $159.12 average price target implies that the shares will appreciate by 21% in the year ahead. (See DDOG stock forecast)
Cognex (CGNX)
The next UBS AI pick we’ll look at, described by the bank as a ‘Top Pick,’ is Cognex, a leader in the field of machine vision systems. The company was founded in 1981, and its first vision system was used by a typewriter manufacturer to automate the inspection process for the keys. Since then, Cognex has expanded its products and their capabilities; the company’s product line has become vital in industry and manufacturing, as factory floor visual and laser sensors, and as industrial barcode readers. Cognex has also become an important equipment provider to the semiconductor industry, where machine vision is a vital capability in every step of the silicon chip manufacturing process.
The advent of AI brought new opportunities for Cognex – and in more than one way. The company’s visual sensors were already important in chip making, and that use continues as chip makers expand to meet AI demand. But AI is also making leaps in industrial automation – and that field requires that the AI be able to see. Cognex’s visual sensors, in this context, provide the ‘eyes’ for AI-powered visual inspection tools in a wide range of industries, from high-tech chip making to visually guided robotics to airport baggage handling to packaging to the food and beverage sector, to name just a few.
In June of this year, Cognex announced the introduction of its cloud-based AI software platform, OneVision. This new platform, scheduled for full launch next year, is designed to provide a suite of advantages for AI users, including a common user interface, improved collaboration capabilities, and capacity for wide-scale deployment of AI technology and applications. The company states that the platform provides all of the tools to move with ease from concept to production in manufacturing facilities.
In short, Cognex provides the growing AI sector with both a vital technology and the know-how to apply it in the real world. The firm’s machine vision tech has found an expanding niche in the world of logistics, and has become important in the consumer electronics field.
In July, Cognex reported its 2Q25 results and showed revenues of $249 million, for a 4% year-over-year increase, and beat the forecast by nearly $3 million. Cognex’s bottom line earnings figure, reported as a non-GAAP EPS of 25 cents, was a penny better than had been anticipated. At the end of Q2, the company had $553 million in cash and liquid assets, and reported a 74% year-over-year increase in free cash flow, to $40 million. The company reported no debt in the quarter.
This stock has caught the attention of UBS analyst Damian Karas, who sees plenty of reasons for an upbeat outlook. He writes, “Mgmt commentary indicates signs of broadening factory automation improvement outside of Logistics, mainly in Packaging and Consumer Electronics – both of which are now expected to see sales growth in 2025. Along those lines, the company finally broke an extended streak of quarterly guidance falling below Street expectations. Moreover, the business appears to be gaining momentum in its strategy to widen the customer base, and winning new business via its AI solutions. We also remain encouraged by what we’ve seen thus far from new management, including a heightened focus on cost discipline / profitable growth. Bottom line, as we outlined when we recently designated CGNX our top pick, we think the company should double their EPS over two years; we’ve argued that Street estimates [for 2026] are too low.”
To this end, Karas rates CGNX shares as a Buy; his price target, at $58, implies a 31% potential upside on the 12-month horizon. (To watch Karas’ stock forecast, click here)
Turning to the general Street view, this stock gets a Moderate Buy consensus rating, based on 12 recent reviews that break down to 7 Buys, 4 Holds, and 1 Sell. The shares are priced at $44.27 and their average target price, of $44.58, indicates they will stay rangebound for the time being. (See CGNX stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.