In this article, we’re going to talk about the 10 best AI penny stocks to buy according to analysts.

Kim Forrest, chief investment officer at Bokeh Capital Partners, recently appeared on CNBC’s ‘The Exchange’ on November 13 to discuss why tech could be a winner in a new Trump administration, focusing her discussion on the current state of AI, particularly the distinction between large language models and smaller, targeted AI solutions.

Forrest noted that while LLMs have garnered significant attention and represent impressive technological advancements, they are not without their flaws. Specifically, she pointed out that these models are still prone to errors, which can hinder productivity and limit their practical applications in real-world scenarios. This concern leads her to advocate for what she refers to as small AI, which emphasizes targeted solutions aimed at addressing specific problems rather than attempting to cover a broad spectrum of tasks.

Her background as a software engineer and her experience working with AI tools have shaped her perspective on the matter. She believes that smaller, more focused AI models will ultimately prove to be more effective in driving productivity gains. Unlike the more complex and exotic LLMs that may resemble something out of science fiction, like HAL 9000 from “2001: A Space Odyssey”, small AI solutions are designed to tackle particular challenges efficiently. Forrest argues that this targeted approach is where true productivity can be realized, making small AI a compelling area for future development and investment.

When discussing investment opportunities in the tech sector, she highlighted several key players in the semiconductor industry that are essential for powering AI technologies. NVIDIA was noted as a natural leader in this space due to its dominance in graphics processing units (GPUs) that are crucial for AI computations. However, she also expressed continued confidence in AMD, despite its recent struggles in the market.

In addition to semiconductor companies, Forrest pointed out opportunities within software firms that are leveraging AI technologies. Microsoft was cited as a prime example, the company is actively working on providing access to LLMs while also narrowing focus to practical applications. For instance, it’s developing finance-oriented GenAI tools designed specifically for accounting tasks. This kind of targeted application exemplifies how LLMs can be adapted for specific industries, enhancing their utility and effectiveness.

Forrest also mentioned C3.ai as another noteworthy player in the AI space. It offers targeted AI solutions but has a significant service component mixed into its revenue model. While this diversification can provide stability, she cautioned that it may also limit scalability compared to bigger companies, which primarily focus on software products with higher margins. She emphasized the importance of understanding the business models of these companies when considering investment opportunities.

Overall, her insights reflect a nuanced understanding of the current tech landscape and the potential of both small and large AI solutions. She advocates for a balanced investment strategy that recognizes the strengths and weaknesses of various companies within the AI ecosystem. As AI continues to evolve, Forrest’s perspective underscores the critical need for investors to remain adaptable and informed about emerging trends and innovations in this dynamic field, which is why we’re here with a list of the 10 best AI penny stocks to buy according to analysts.

Methodology

We used ETFs, stock screeners, and financial media reports to compile an initial list of the top AI penny stocks, with a share price under $5. From that list, we narrowed our choices to 10 AI penny stocks that analysts were the most bullish on. The stocks are ranked in ascending order of analysts’ upside potential.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

10 Best AI Penny Stocks to Buy According to Analysts

10. POET Technologies Inc. (NASDAQ:POET)

Average Upside Potential: 37.08%

Share Price as of November 5: $3.60

Number of Hedge Fund Holders: 1

POET Technologies Inc. (NASDAQ:POET) specializes in developing advanced optical technologies for AI applications, particularly through its innovative POET Optical Interposer platform. This platform enables integrating electronic and photonic devices on a single chip, allowing for high-speed data processing with lower power consumption than traditional semiconductor solutions. By utilizing light for data transmission instead of electrical signals, its products significantly enhance the performance and efficiency of AI systems.

The company has gained recognition for its contributions to AI infrastructure, winning multiple awards for its optical solutions. In October, the company received the “AI Innovator of the Year” Gold Prize at the 2024 Merit Awards and the “Best in Artificial Intelligence” category at the 2024 Global Tech Awards, solidifying its position as an AI industry leader.

It secured a major design win with Foxconn Interconnect Technology (FIT) in FQ4 2024 to supply 800G and 1.6T optical engines for AI and data center networks. Luxshare Tech, an Apple supplier, expanded its optical module portfolio using its optical engines.

POET Technologies Inc. (NASDAQ:POET) and Mitsubishi Electric Corporation recently joined forces to develop integrated optical engine chipsets for 3.2T pluggable transceivers, essential for optical connectivity in the rapidly expanding AI networking market. Mitsubishi Electric will provide 400G EMLs, while POET Technologies Inc. (NASDAQ:POET) will integrate them using its optical interposer platform. The goal is to produce 1.6T and 3.2T chipsets by early 2025.

This partnership addresses the increasing demand for high-speed optical connectivity in AI and cloud data center networks. Driven by such strides, the company demonstrates its ability to become a leader in its industry.

9. Perfect Corp. (NYSE:PERF)

Average Upside Potential: 69.79%

Share Price as of November 5: $1.93

Number of Hedge Fund Holders: 9

Perfect Corp. (NYSE:PERF) is a technology company that uses AI and AR to provide innovative solutions primarily for the beauty, fashion, and skincare industries. It offers a range of AI-driven tools, including virtual makeup applications, skin analysis, and personalized hair color recommendations. Its flagship products, such as the YouCam app suite, allow users to experiment with beauty products virtually, enhancing customer engagement and shopping experiences.

By integrating AI and AR technologies, the company helps brands improve their digital transformation efforts while also focusing on sustainability and social responsibility within the beauty sector. It achieved strong growth in Q3 2024, driven by its AI/AR cloud solutions. Quarterly revenue totaled $16.13 million, an improvement of 10.85% year-over-year. The AI/AR cloud solution and subscription revenue grew 17.9%.

Its AI-powered skin diagnostics and virtual try-on solutions continue to perform well. However, the third quarter saw increased R&D, up 5.9%, primarily due to hiring more people and investing in new technologies like GenAI. Perfect Corp. (NYSE:PERF) also launched Perfect GPT, an AI-powered personalized beauty assistant recently, which is expected to be commercially deployed in early 2025. The company is confident in its ability to capitalize on expanding market opportunities and sustain long-term growth.