On July 14, Wedbush’s Dan Ives appeared on CNBC to discuss the expected tech sector earnings and explained how he thinks AI will give a boost to more than just the hyperscalers. According to LSEG, technology and communication services sectors were responsible for almost all of the earnings growth this season, and without them, overall earnings growth would be negative. Ives emphasized that the most significant factor behind this pattern, in his opinion, was the AI revolution which was spreading across software, cybersecurity, and cloud computing.
Ives then stated that if there were to be a weakness, it would likely come from networking players. Conversely, he expressed strong confidence in software. He particularly highlighted cloud computing and cybersecurity as significant beneficiaries due to the second and third derivatives playing out. He reiterated his view of the current period as a golden age for tech and believed the current earnings season was just the beginning, projecting a 10% to 15% rise in tech stocks in H2 of the year. However, cybersecurity has been lagging since the start of the quarter, even showing negative performance. Ives attributed the performance to a rotation of funds, possibly into higher-growth software and other AI-related plays. He contended that the market had misjudged the situation, believing that cybersecurity could be the biggest subsector performer for tech this year. He explained that as more services move to the cloud, cybersecurity would become increasingly essential.
That being said, we’re here with a list of the 10 best small cap AI stocks to buy according to analysts.
A portfolio manager, confident in her analysis, inspecting several stocks on her laptop screen.
Methodology
We used the Finviz stock screener to compile a list of the top small cap stocks that were trading under $5 billion. We then selected 11 AI stocks that had a high average upside potential of over 25%. The stocks are ranked in ascending order of their average upside potential. We’ve also added the hedge fund sentiment for each stock, which was sourced from Insider Monkey’s database, as of Q1 2025.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Best Small Cap AI Stocks to Buy According to Analysts
10. Cerence Inc. (NASDAQ:CRNC)
Number of Hedge Fund Holders: 18
Market Capitalization as of July 16: $385.43 million
Average Upside Potential as of July 16: 12.23%
Cerence Inc. (NASDAQ:CRNC) is one of the best small cap AI stocks to buy according to analysts. On June 26, Cerence Inc. announced that its core technologies are powering the new agentic and GenAI capabilities within the 4th generation of Mercedes-Benz User Experience/MBUX.
The advanced system will debut in the all-new and all-electric Mercedes-Benz CLA, marking the first launch of Mercedes-Benz’s MB.OS operating system. Cerence AI’s solutions are fundamental to the MBUX Virtual Assistant and support conversational capabilities across 25 languages.
Cerence AI also allows MBUX to deliver more natural and empathetic interactions by analyzing a user’s voice and responding with varying emotional speaking styles through Cerence’s neural Text-to-Speec/TTS technology. The 2026 Mercedes-Benz CLA electric sedan, which will feature this new MBUX system, is expected to be released in the fall of 2025, with a hybrid version following early in 2026.
Cerence Inc. (NASDAQ:CRNC) provides AI-powered virtual assistants for the mobility/transportation market in the US, the rest of the Americas, Germany, the rest of Europe, the Middle East, Africa, Japan, and the rest of Asia-Pacific.
9. Ambarella Inc. (NASDAQ:AMBA)
Number of Hedge Fund Holders: 35
Market Capitalization as of July 16: $2.82 billion
Average Upside Potential as of July 16: 20.16%
Ambarella Inc. (NASDAQ:AMBA) is one of the best small cap AI stocks to buy according to analysts. On June 24, Bloomberg announced that Ambarella is reportedly exploring strategic options, including a potential sale. Bloomberg’s Ryan Gould and Dinesh Nair reported that the company is working with bankers and has reached out to potential buyers.
Ambarella designs chips primarily used in video recording, streaming, and ADAS for self-driving cars. Its technology focuses on edge AI processing and human vision applications, such as video security, electronic mirrors, drive recorders, driver/cabin monitoring, autonomous driving, and robotics.
Potential buyers could include rival chip companies that are seeking to enhance their automotive portfolios or private equity firms. Ambarella last posted an annual profit in 2017 but is forecasting a 28% revenue growth in FY2025, driven by increasing demand for its edge AI products, which now account for 75% of its sales.
Ambarella Inc. (NASDAQ:AMBA) develops semiconductor solutions that enable AI processing, advanced image signal processing, and high-definition/HD and ultra-HD compression.
