In this piece, we will take a look at some of the best small-cap AI stocks to buy. For more AI stocks in our selection, head on over to 5 Best Small Cap AI Stocks To Buy Now.
Artificial Intelligence (AI) is undoubtedly the most talked about trend in technology at the moment. For years, both consumers and enterprises have been leveraging artificial intelligence in various ways: interacting with voice assistants like Siri and Alexa, automating repetitive tasks, and employing algorithms to identify patterns and correlations in data. However, it was the emergence of applications capable of generating original text and digital art that truly marked a significant milestone—a new era where AI demonstrates its ability to mimic human creative processes and quickly becomes widely recognized. This phenomenon has prompted companies worldwide, including multinational giants like Alphabet Inc. (NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN), to swiftly embrace the AI frenzy, eagerly introducing their own AI-powered products and services. Of course, much like any other aspect of technology, AI has raised its own apprehensions regarding its potential adverse effects. These include job displacement and ethical dilemmas surrounding the implementation of intelligent systems. Many experts stress the importance of thoroughly assessing the implications of AI and establishing responsible development and usage guidelines to address these concerns.
Although AI has long been a fast-moving field, these past few years have led the industry through lightning-fast developments. In November 2022, ChatGPT was launched, and just four months later, OpenAI introduced a new and significantly enhanced large language model (LLM) named GPT-4. Additionally, Anthropic’s generative AI, Claude, made remarkable progress by May 2023, now capable of processing 100,000 tokens of text in a minute, equivalent to about 75,000 words—an average novel’s length. This was a substantial improvement from its initial capacity of roughly 9,000 tokens when it debuted in March 2023. Furthermore, in May 2023, Alphabet Inc. (NASDAQ:GOOG) made several advancements with generative AI, unveiling a number of new features, including the Search Generative Experience, and introducing a new LLM named PaLM 2, which would power its Bard chatbot along with other Google products.
Next Move Strategy Consulting predicts a robust surge in the artificial intelligence (AI) market over the next decade. With its current value standing at nearly $100 billion, the industry is anticipated to witness an impressive twentyfold growth by 2030, reaching almost $2 trillion, with a compound annual growth rate (CAGR) of 32.9% from 2022 to 2030.
In addition, the influence of generative AI on productivity has the potential to contribute trillions of dollars in value to the global economy. As per McKinsey’s latest research estimates, the technology could bring about an annual addition of approximately $2.6 trillion to $4.4 trillion. Additionally, the firm believes that approximately 75% of the value derived from generative AI use cases is concentrated in four key areas: Customer operations, marketing and sales, software engineering, and R&D.
Considering the above mentioned developments, it is crucial to examine an extensive array of companies actively involved in developing and implementing AI technology. Among the AI-related interests of hedge funds are NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG).
Photo by Andrea De Santis on Unsplash
Our Methodology
For our list of the best small-cap AI stocks to buy, we selected companies operating in the field of artificial intelligence with a market capitalization ranging from $200 to $2 billion. Employing Insider Monkey’s hedge fund data, we ranked these companies based on the number of hedge funds holding stakes in them, starting from the lowest to the highest number.
10. Innodata Inc. (NASDAQ:INOD)
Market Capitalization as of July 29: $325.37 million
Number of Hedge Fund Holders: 4
Innodata Inc. (NASDAQ:INOD), formerly Innodata Isogen, Inc., is an American IT company that provides business process, technology and consulting services to assist clients in setting digital content production and product strategies. The company’s generative AI data engineering services encompass various aspects, such as the development and refinement of generative AI foundation models. These services also cover demonstration, instruction tuning, reinforcement learning from human feedback (RLHF), and red teaming, which aids in identifying and addressing potential model vulnerabilities.
On July 18, Innodata, Inc. made an announcement regarding the successful closure of a substantial deal with one of the world’s five largest technology companies. This deal involves training the customer’s AI large language models (LLMs). According to the newly signed agreement, the customer has allocated a budget of up to $8 million for expenditures in the remaining months of 2023. Innodata Inc. (NASDAQ:INOD) foresees the possibility of achieving an annualized run rate of $15 million or even higher by the conclusion of 2023. Moreover, the company envisions potential opportunities for further expansion in 2024.
At the end of the first quarter of 2023, 4 hedge funds in the database of Insider Monkey held stakes worth $7.82 million in Innodata Inc. (NASDAQ:INOD).
Innodata Inc. (NASDAQ:INOD) is another noteworthy stock, similar to NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), that investors with an interest in AI should closely monitor today.
9. SoundHound AI, Inc. (NASDAQ:SOUN)
Market Capitalization as of July 29: $523.92 million
Number of Hedge Fund Holders: 13
SoundHound AI, Inc. (NASDAQ:SOUN) is an audio and speech recognition company founded in 2005. It specializes in assisting businesses across various industries by providing high-quality conversational experiences for clients through their independent voice artificial intelligence (AI) platform. The company offers conversational voice assistants like text-to-speech, embedded voice solutions, automatic speech recognition, and natural language understanding, among a range of other services.
A total of 13 hedge funds were long SoundHound AI, Inc. (NASDAQ:SOUN) in the first quarter. Their total stake value was $16.48 million. This is compared to 7 hedge funds in the previous quarter.
8. Desktop Metal, Inc. (NYSE:DM)
Market Capitalization as of July 29: $572.37 million
Number of Hedge Fund Holders: 14
Desktop Metal, Inc. (NYSE:DM) is a public American technology company that designs and markets 3D printing systems. A renowned global leader in additive manufacturing technologies for mass production, the company has recently introduced Live Suite™, a comprehensive package that delivers generative AI solutions with brand-new functionalities tailored for users of the company’s Additive Manufacturing 2.0 systems across Team DM brands.
Desktop Metal, Inc. (NYSE:DM) disclosed on May 25 its decision to merge with Stratasys Ltd. (NASDAQ: SSYS) in an all-stock transaction, placing a valuation of $1.8 billion on the combined entity.
By the end of this year’s first quarter, 14 of the 943 hedge funds part of Insider Monkey’s database had held a stake in Desktop Metal, Inc. (NYSE:DM). This is compared to 10 hedge funds in the previous quarter.
7. FiscalNote Holdings Inc. (NYSE:NOTE)
Market Capitalization as of July 29: $452.73 million
Number of Hedge Fund Holders: 15
FiscalNote Holdings, Inc. (NYSE:NOTE), or commonly FiscalNote, is a publicly traded software, data, and media company headquartered in Washington, D.C. Leveraging AI and machine learning, the company delivers consulting services to businesses and organizations. These services combine analytics, workflow tools, and expert research to cater to the specific needs and requirements of its clients.
As of July 14, Michael Latimore from Northland Capital Markets has assigned an Outperform rating to FiscalNote Holdings Inc. (NYSE:NOTE) shares, alongside a price target of $9.
In total, 15 hedge funds were long FiscalNote Holdings Inc. (NYSE:NOTE) at the end of the first quarter. Their total stake value in the company was $77.6 million.
6. Lemonade, Inc. (NYSE:LMND)
Market Capitalization as of July 29: $1.51 billion
Number of Hedge Fund Holders: 15
Lemonade, Inc. (NYSE:LMND) is a digital insurance company that uses artificial intelligence and behavioral economics to provide renters’ insurance, homeowners’ insurance, car insurance, pet insurance, and term life insurance in the United States. The company also offers contents and liability policies in Germany and the Netherlands, while in France, it specializes in renters’ insurance. As of Q1, the in-force premium (IFP) experienced a 56% growth compared to the previous year, reaching $653 million. Moreover, the company’s customer count saw a notable increase of 23%, reaching 1.9 million compared to the previous year.
As per the Shareholder Letter released on May 3rd, 2023, Lemonade, Inc. (NYSE:LMND) has high expectations for generative AI. It envisions leveraging this technology to automate and enhance around 100 of its business processes. Having established its roots in artificial intelligence (AI), the company has successfully crafted numerous prototypes for generative AI technology. As a result, it foresees significant cost savings in its operational framework within the upcoming 18 months.
At the end of the first quarter of 2023, 15 hedge funds in the database of Insider Monkey held stakes in Lemonade, Inc. (NYSE:LMND), compared to 16 funds in the previous quarter. These held a collective stake value of approximately $28 million. Ken Griffin’s Citadel Investment Group was the company’s largest shareholder, with stakes valued at $17.2 million.
Much like NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), Lemonade, Inc. (NYSE:LMND) is a stock with much to gain from the recent AI boom.
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Disclosure: None. 10 Best Small Cap AI Stocks To Buy Now is originally published on Insider Monkey.
