The S&P 500 (^GSPC -0.01%) has advanced 21% in the last year, and many stocks now trade at expensive valuations. However, most Wall Street analysts still see buying opportunities in Datadog (DDOG -3.59%) and The Trade Desk (TTD -2.15%):

• Among the 47 analysts who follow Datadog, the median target price is $160 per share. That implies 21% upside from its current share price of $132.
• Among the 40 analysts who follow The Trade Desk, the median target price is $142 per share. That implies 75% upside from its current share price of $81.

Importantly, Datadog and The Trade Desk suffered large drawdowns following their latest financial reports, but that creates an opportunity. Patient investors can now buy one share of both stocks for less than $250.

Here's what investors should know.

1. Datadog

Datadog sells observability software. Its platform includes about two dozen products that help businesses monitor the performance of applications and IT infrastructure. Its software also facilitates collaboration between development and operations teams, which helps organizations work more productively.

In the past year, research company Gartner recognized Datadog as a technology leader in observability and digital experience monitoring software. That's a good sign. Demand for observability products is projected to increase at 11% annually through 2028 as cloud migration and artificial intelligence (AI) make IT environments more complex.

Datadog reported fourth-quarter financial results that beat expectations on the top and bottom lines. Its customer count increased 10% to 30,000, and the average existing customer spent about 10% more. In turn, revenue increased 25% to $738 million and non-GAAP (generally accepted accounting principles) net income increased 11% to $0.49 per diluted share.

However, management gave disappointing guidance for 2025. At the high point, Datadog expects revenue to increase about 19% to $3.2 billion, while adjusted earnings drop about 6% to $1.70 per diluted share. That news caused the stock to plunge more than 10%, creating a buying opportunity.

Observability software will become more important as enterprises deploy AI applications. Most AI spending is currently directed at training workflows, but spending will eventually drift toward running inference on AI models. Morgan Stanley analyst Sanjit Singh thinks that will be an important catalyst for Datadog. Investors must simply be patient until that moment arrives.

Wall Street estimates adjusted earnings will grow at 22% annually through 2027. That makes the current valuation of 71 time adjusted earnings look expensive. But I think the consensus estimate is too low.

Datadog beat the consensus by an average of 21% during the last six quarters. Its current valuation will look cheap in hindsight if that continues. So, investors with a three-to-five-year time horizon should buy a small position today.

2. The Trade Desk

The Trade Desk operates the leading independent adtech platform for media buyers. Its software helps ad agencies and brands plan, measure, and optimize digital campaigns. Its platform also leans on sophisticated machine learning and measurement capabilities to help media buyers spend advertising budgets more effectively.

The Trade Desk has a particularly strong presence in retail media and connected TV (CTV), two of the fastest-growing advertising channels, due to its independent business model. To elaborate, unlike Alphabet's Google and Meta Platforms, The Trade Desk does not own ad inventory and therefore has no incentive to steer ad buyers toward its own web properties. That independence eliminates conflicts of interest.

Additionally, because The Trade Desk does not compete with publishers (companies that sell ad inventory), retailers and CTV platforms are more likely to become partners. Indeed, The Trade Desk sources data from leading retailers like Albertsons, Target, and Walmart. And it sources inventory from leading streaming services like Netflix, Roku, Spotify, and Walt Disney's Hulu and Disney+.

The Trade Desk reported disappointing financial results in the fourth quarter. Revenue increased 22% to $741 million, missing the company's guidance of "at least $756 million." However, non-GAAP net income still rose 44% to $0.59 per diluted share. CEO Jeff Green said the company "stumbled due to a series of small execution missteps," but he also said The Trade Desk has already taken steps to correct the problem.

Shares still declined sharply following the report, but Morgan Stanley analyst Matthew Cost sees that as a buying opportunity. He argues disappointing fourth-quarter results were due to transitory challenges unrelated to competition or the addressable market, and he remains bullish on The Trade Desk based on its strength in retail media and CTV advertising.

Wall Street expects The Trade Desk's earnings to increase at 21% annually through 2026. Comparatively, the current valuation of 49 times earnings looks a little expensive, but far more reasonable than the multiple of 80 times earnings at which the stock traded before the company reported fourth-quarter financial results. Patient investors should capitalize on the recent drawdown and buy a position today.