In this article, we will be taking a look at the 10 best small-cap AI stocks.
With changing trends in technological advancement and the rise of big tech, artificial intelligence, and machine learning, the AI sector is beginning to attract increasing investor attention. With billions of dollars currently being poured into AI research, new products across various fields such as medicine, new materials, climate, and more, are expected to be developed on the back of AI and machine learning. The possibilities represented by the role of AI in areas such as image recognition and natural language processing are thus attracting many investors to consider AI as their go-to investment pick.
While major companies such as Amazon.com, Inc. (NASDAQ:AMZN), NVIDIA Corporation (NASDAQ:NVDA), and Alphabet Inc. (NASDAQ:GOOG) have held many investors’ attention for years, smaller companies are beginning to prove their mettle as well. This year has been rough on all stock indexes, but the Russell 2000 index of small-cap stocks began to turn the tide in July when it rose 3.6%, according to the Wall Street Journal. In comparison, the S&P 500 rose by 3%, indicating that the small-cap index may finally begin outperforming the larger S&P 500.
At the same time, as small-cap stocks are continuing to trade at discounted prices during the bear market, many investors are looking at these stocks as cheap investment opportunities promising high rewards in the near future. Francis Gannon, the co-chief investment officer at Royce Investment Partners, noted this July that his firm is aiming to invest in small-cap companies at discounted prices and hold on to these shares for about three to five years to help boost the firm’s returns.
When it comes to investing in tech stocks, AI stocks have been benefitting from the rising interest in AI research and technologies. According to another Wall Street Journal article, Alphabet Inc.’s (NASDAQ:GOOG) R&D expenses grew from $27.6 billion in 2020 to $31.7 billion in 2021 as the company poured money into AI research. S&P companies on average spent 2.8% of their revenue on R&D as well, while Meta Platforms’ R&D expenses rose to about $24.7 billion in 2021. And when it comes to the overall sector performance for AI, a Zion Market Research forecast cited by Bloomberg this June noted that the global artificial intelligence market is expected to grow at a 39.4% CAGR between 2022 and 2028.
Artificial intelligence is steadily beginning to gain the title of the next big tech frontier, according to Oppenheimer this June. CNBC has reported that the market for artificial intelligence hardware could be worth approximately $105 billion by 2025. Analyst Rick Schafer from Oppenheimer noted that given the rising popularity of AI stocks, companies like NVIDIA Corporation (NASDAQ:NVDA) are being rewarded with intense investor interest.
As such, now seems the best time to begin considering AI stock options for investment opportunities, so let’s take a look at the 10 best small-cap AI stocks to buy now.
Copyright: niserin / 123RF Stock Photo
Our Methodology
We have selected top stocks in the artificial intelligence sector with market capitalizations between $300 million and $2 billion. These stocks are also popular among hedge funds tracked by Insider Monkey in the second quarter. The stocks are ranked based on their market caps, from the lowest to the highest. We have also mentioned analyst ratings and price targets for most of the stocks on our list, ensuring they have mostly positive ratings and price targets signifying upside potential in their share prices.
Best Small-Cap AI Stocks
10. Ideanomics, Inc. (NASDAQ:IDEX)
Number of Hedge Fund Holders: 6
Market Cap as of August 21: $302,300,000
Ideanomics, Inc. (NASDAQ:IDEX) is a company working to promote commercial electric vehicles and which develops financial services and fintech products. The company is driven by artificial intelligence and is working to market and develop its AI services and solutions offerings under the Intelligenta brand. It is based in New York.
In July, Ideanomics, Inc.’s (NASDAQ:IDEX) Solectrac partnered with Nolan Manufacturing. The partnership will help the company meet the rising demand for electric tractors. The company will now be able to make use of its 10,000-square-foot manufacturing facility to increase production and ramp up its earnings by delivering more tractors to its customers. On August 5, Andres Sheppard at Cantor Fitzgerald placed a ‘Neutral’ rating on Ideanomics, Inc. (NASDAQ:IDEX) shares.
Six hedge funds out of the 895 funds tracked by Insider Monkey that filed 13Fs for the second quarter held stakes in Ideanomics, Inc. (NASDAQ:IDEX). Their total stake value was $11.2 million. Millennium Management was the largest stakeholder in the company, holding 8.27 million shares worth $5.5 million.
Ideanomics, Inc. (NASDAQ:IDEX), like Amazon.com, Inc. (NASDAQ:AMZN), NVIDIA Corporation (NASDAQ:NVDA), and Alphabet Inc. (NASDAQ:GOOG) is a lucrative investment opportunity in the artificial intelligence sector.
9. Mitek Systems, Inc. (NASDAQ:MITK)
Number of Hedge Fund Holders: 12
Market Cap as of August 21: $471,500,000
Mitek Systems, Inc. (NASDAQ:MITK) is an AI and information technology company that develops, markets, and sells mobile image capture and digital identity verification solutions. The company operates in the U.S., Europe, Latin America, and internationally. Its solutions are embedded in mobile apps and web browsers to improve consumer experiences on those platforms.
Scott Buck, an analyst at H.C. Wainwright, holds a ‘Buy’ rating on Mitek Systems, Inc. (NASDAQ:MITK) shares as of July 29. The analyst also has a $19 price target on the stock.
In the third quarter of 2022, Mitek Systems, Inc. (NASDAQ:MITK) had an EPS of $0.23, beating estimates by $0.03. The company’s revenue was $39.3 million, up 23.8% year-over-year and also beating estimates by $3.4 million.
Our hedge fund data for the second quarter shows 12 hedge funds long Mitek Systems, Inc. (NASDAQ:MITK), with a total stake value of $69.8 million. In comparison, 15 hedge funds were long the stock in the previous quarter, with a total stake value of $95.4 million.
8. Yext, Inc. (NYSE:YEXT)
Number of Hedge Fund Holders: 19
Market Cap as of August 21: $573,450,000
Yext, Inc. (NYSE:YEXT) is an IT company organizing business facts to answer consumer questions in North America and internationally. The company’s cloud-based Yext platform allows customers to answer consumer questions and control facts about their businesses. It manages a knowledge network of about 200 maps, apps, search engines, intelligent GPS systems, digital assistants, vertical directories, and social networks.
This June, Yext, Inc. (NYSE:YEXT) shares rallied after positive earnings and guidance updates. The company’s gross profit increased 6% year-over-year to $74.1 million in the first quarter. Its cash and cash equivalents balance was $248 million at the close of the quarter.
Lead Edge Capital was the largest stakeholder in Yext, Inc. (NYSE:YEXT) in the second quarter, out of a total of 19 hedge funds long the stock. Mitchell Green’s fund held 8.93 million shares in the company, worth $42.7 million.
Amazon.com, Inc. (NASDAQ:AMZN), NVIDIA Corporation (NASDAQ:NVDA), and Alphabet Inc. (NASDAQ:GOOG) are among the top names in big tech and AI, a category Yext, Inc. (NYSE:YEXT) is steadily beginning to join.
7. NetGear, Inc. (NASDAQ:NTGR)
Number of Hedge Fund Holders: 11
Market Cap as of August 21: $725,530,000
NetGear, Inc. (NASDAQ:NTGR) is an IT company using machine learning and artificial intelligence to build smart solutions and design, develop, and market networking and Internet-connected products. The company operates through its Connected Home and Small and Medium Business segments. It also provides Ethernet switches and Wi-Fi mesh systems alongside a range of other products and services.
BWS Financial analyst Hamed Khorsand upgraded NetGear, Inc. (NASDAQ:NTGR) shares on July 28 from ‘Neutral’ to ‘Buy’. The analyst also placed a $30 price target on the stock.
In July, NetGear, Inc. (NASDAQ:NTGR) offered third-quarter revenue guidance that topped analyst estimates. The company’s second-quarter results also beat estimates, causing the stock to skyrocket. NetGear, Inc. (NASDAQ:NTGR) projected $40 million in third-quarter revenue, and had an EPS loss of $0.19 in the second quarter, beating estimates by $0.05. The company’s revenue for the quarter was $223 million, also beating estimates by $13.4 million.
There were 11 hedge funds long NetGear, Inc. (NASDAQ:NTGR) in the second quarter, compared to 13 hedge funds in the previous quarter. Their total stake values were $10.3 million and $13.5 million respectively.
6. Riskified Ltd. (NYSE:RSKD)
Number of Hedge Fund Holders: 9
Market Cap as of August 21: $859,100,000
Riskified Ltd. (NYSE:RSKD) is an application software company operating an e-commerce risk management platform. The company’s platform helps online merchants create trusted relationships with their customers. The company uses AI and machine learning to equip its customers with frictionless fraud prevention solutions.
The company’s EPS loss in the second quarter was $0.08, beating estimates by $0.07. Riskified Ltd. (NYSE:RSKD) had revenue of $59.9 million, also beating estimates by $2.3 million. An analyst at Piper Sandler, Brent Bracelin, holds a ‘Neutral’ rating on shares of Riskified Ltd. (NYSE:RSKD) as of July 18.
In the second quarter of 2022, nine hedge funds were long Riskified Ltd. (NYSE:RSKD), with a total stake value of $36.6 million. Of these funds, Toronado Partners was the largest stakeholder in the company, holding 4.3 million shares worth about $19.1 million.
Just like Amazon.com, Inc. (NASDAQ:AMZN), NVIDIA Corporation (NASDAQ:NVDA), and Alphabet Inc. (NASDAQ:GOOG), Riskified Ltd. (NYSE:RSKD) is an AI stock hedge funds are keeping an eye on.
5. Magic Software Enterprises Ltd. (NASDAQ:MGIC)
Number of Hedge Fund Holders: 7
Market Cap as of August 21: $869,220,000
Magic Software Enterprises Ltd. (NASDAQ:MGIC) is an IT company operating an integration platform for real-time AI and machine learning. The company provides proprietary application development, business process integration, vertical software solutions, and IT outsourcing software services in Israel and internationally.
In May, Magic Software Enterprises Ltd. (NASDAQ:MGIC) raised its 2022 annual revenue guidance to between $540 million and $550 million, versus the consensus estimate of just over $540 million. The company’s guidance shows expected annual growth of between 12.4% and 13.5%.
Seven hedge funds were long Magic Software Enterprises Ltd. (NASDAQ:MGIC) in the second quarter of 2022. Their total stake value was $15.6 million.
4. Perion Network Ltd (NASDAQ:PERI)
Number of Hedge Fund Holders: 14
Market Cap as of August 21: $920,860,000
Perion Network Ltd (NASDAQ:PERI) is a communication services company providing digital advertising solutions to brands, agencies, and publishers. The company operates an AI platform using machine learning to bring intelligence to various phases of different campaigns.
In August, Perion Network Ltd (NASDAQ:PERI) shares rallied after the company’s positive second-quarter earnings results, which showed revenue of $147 million, beating estimates by $0.3 million. Perion Network Ltd’s (NASDAQ:PERI) video revenue grew by 273% year-over-year. The company also reaffirmed its 2022 revenue outlook of $620 million to $640 million, versus the consensus estimate of $626 million.
In the second quarter, 14 hedge funds were long Perion Network Ltd (NASDAQ:PERI), compared to 17 hedge funds in the previous quarter. Their total stake values were $88.2 million and $131 million respectively.
3. Sumo Logic, Inc. (NASDAQ:SUMO)
Number of Hedge Fund Holders: 21
Market Cap as of August 21: $938,590,000
Sumo Logic, Inc. (NASDAQ:SUMO) is an application software company providing a cloud-native software-as-a-service platform enabling organizations to address the challenges and opportunities arising out of digital transformation and cloud computing. The company uses applications including operational, security, and business analytics to help IT operations work more effectively by leveraging AI.
Rob Owens at Piper Sandler reiterated a ‘Neutral’ rating on Sumo Logic, Inc. (NASDAQ:SUMO) shares on July 13.
In July, it was reported that Sumo Logic, Inc. (NASDAQ:SUMO) would be integrated with Gigamon’s Gigamon Hawk Deep Observability Pipeline and Gigamon ThreatINSIGHT Network Detection and Response solution. The integration will improve the reliability and security of cloud-native applications, helping the companies to optimize their cloud performance and contain the rising costs of data exchange and storage.
Our hedge fund data for the second quarter shows 21 hedge funds long Sumo Logic, Inc. (NASDAQ:SUMO), with a total stake value of $64 million.
2. Digi International Inc. (NASDAQ:DGII)
Number of Hedge Fund Holders: 14
Market Cap as of August 21: $1,220,000,000
Digi International Inc. (NASDAQ:DGII) provides business and mission-critical Internet of Things products, services, and solutions in the U.S. and globally. The company utilizes AI-based applications for various purposes, such as its accessibility interface allowing persons with disabilities to adjust website interfaces and design them to their personal needs.
For the third quarter, Digi International Inc. (NASDAQ:DGII) had EPS of $0.45, beating estimates by $0.08. The company’s revenue was $104 million, up 30.9% year-over-year and also beating estimates by $7.4 million. On August 5, Canaccord’s T. Michael Walkley reiterated a ‘Buy’ rating on Digi International Inc. (NASDAQ:DGII) shares. The analyst also raised his price target on the shares from $30 to $41.
Out of 895 hedge funds that filed 13Fs for the second quarter, 14 were long Digi International Inc. (NASDAQ:DGII). Their total stake value was $62.9 million. That was a notable increase from nine hedge funds long DGII in the previous quarter, with a total stake value of $44.3 million.
1. Docebo Inc. (NASDAQ:DCBO)
Number of Hedge Fund Holders: 15
Market Cap as of August 21: $1,350,000,000
Docebo Inc. (NASDAQ:DCBO) is an information technology company providing a cloud-based learning management system to train internal and external workforces, partners, and customers. The company’s learning platform is built on the power of artificial intelligence, helping it support personalized learning paths for its consumers.
An ‘Outperform’ rating was reiterated on Docebo Inc. (NASDAQ:DCBO) shares on June 14, by analyst Stephanie Price at CIBC.
Docebo Inc. (NASDAQ:DCBO) shares traded higher in August in light of the company’s positive second-quarter results. The company’s subscription revenue was $31.9 million, showcasing a rise of 35% year-over-year. It also brought in gross profit of $28 million, an increase of 37% compared to the same period last year.
There were 15 hedge funds long Docebo Inc. (NASDAQ:DCBO) in the second quarter, with a total stake value of $213 million.
Don’t miss out on the 17 Largest Fintech Companies in the World and 10 States with the Most Expensive Health Insurance.
Follow Insider Monkey on Twitter
Suggested articles:
- 15 Best Technology Stocks To Buy Now
- 15 Largest FMCG Companies in the World
- 10 Best Auto Stocks to Buy Now
Disclosure: None. 10 Best Small-Cap AI Stocks is originally published on Insider Monkey.
