Cathie Wood Thinks AI Will Create a $13 Trillion Software Opportunity. 1 Unstoppable Stock to Buy If She's Right.

Cathie Wood is the founder of Ark Investment Management, which operates several exchange-traded funds (ETFs) that invest in innovative technology stocks. In the 2025 edition of Ark's annual "Big Ideas" report, the firm issued a forecast suggesting AI could create a $13 trillion opportunity in the software industry by 2030.

Ark believes AI-powered assistants like ChatGPT will reduce development costs, which will result in more software coming to market and drive a productivity boom, particularly among knowledge workers and professionals (like lawyers, doctors, and engineers).

Datadog (NASDAQ: DDOG) offers a growing portfolio of software and AI development tools, and they could be in very high demand if Ark's forecast is accurate. Its stock just hit a new all-time high, but here's why it could still be a solid buy for long-term investors.

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Datadog's portfolio of AI tools is essential for developers

Datadog's cloud observability platform is used by businesses in a variety of industries, from retail to entertainment to financial services. It monitors their digital infrastructure around the clock, immediately alerting managers to technical issues so they can be fixed before they impact the customer experience.

For example, if a business's e-commerce website goes down in one specific country, management might not notice until sales start falling. However, with Datadog monitoring the website's infrastructure, the business would be notified as soon as the problem appeared.

Datadog now offers similar products for AI software developers. One of them is called LLM Observability, and it helps developers track costs and identify technical issues when building large language models (LLMs). It can also help evaluate the quality of a model's outputs, which ensures finished applications -- like chatbots, for example -- don't generate inappropriate responses.

Datadog also offers a product called OpenAI Monitoring, which is for developers who want to create AI software using ready-made LLMs supplied by OpenAI. This is a popular option because building an LLM from scratch requires substantial financial and technical resources. OpenAI Monitoring helps developers track usage, costs, and error rates across their entire organization.

Datadog had a record 32,000 customers at the end of the third quarter of 2025 (ended Sept. 30). Over 5,000 of them were using at least one of the company's AI products, which was up by a whopping 67% from the year-ago period. Demand is likely to grow significantly from here, especially if Cathie Wood's prediction comes true, because observability tools allow developers to bring high-quality AI software to market much faster.

Datadog's AI revenue soared in the third quarter

Datadog generated $886 million in total revenue during the third quarter, which was up 28% from the year-ago period. It crushed the high end of management's forecast, which was $851 million, and AI products made a record contribution.

Datadog CFO David Obstler said AI-native customers accounted for 12% of the company's revenue, which doubled from 6% a year ago. He also said revenue growth among those customers accelerated, which implies there is significant momentum in this part of Datadog's business.

Following the strong result, management increased its forecast for 2025 for the third time this year. Datadog's total revenue is now expected to reach $3.39 billion at the upper end of the guidance range, which is almost $200 million higher than management's original forecast coming into the year.

Wall Street is bullish on Datadog stock, but there's a catch

There is a consensus on Wall Street that Datadog stock could be headed higher. The Wall Street Journal tracks 47 analysts who cover the stock, and 34 have given it a buy rating. Six others are in the overweight (bullish) camp, and the remaining seven recommend holding. None of the analysts advises selling.

The analysts have an average price target of $214.92, suggesting Datadog stock could climb by a modest 8% over the next 12 to 18 months. The Street-high target of $255 suggests a juicy 28% upside, but there's a catch.

Datadog stock is already trading at a price-to-sales (P/S) ratio of 22.4, which is a 33% premium to its three-year average of 16.8, so further upside could be limited in the remainder of this year. Moreover, Wall Street's consensus estimate (provided by Yahoo! Finance) suggests Datadog will generate $4.1 billion in revenue during 2026, placing its stock at a forward P/S ratio of 17.1, which would still be above its three-year average.

DDOG PS Ratio data by YCharts

In other words, unless Datadog generates far more revenue next year than analysts expect, its stock might struggle to build on its recent record high.

With that said, if the demand for cloud observability tools over the past decade is any indication, LLM and AI monitoring could be an enormous opportunity for Datadog. If AI really does drive a software development boom and create a $13 trillion opportunity by 2030, it's possible that Datadog stock will look cheap at the current price when investors reflect back on this moment in five years.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Datadog. The Motley Fool has a disclosure policy.