We recently compiled a list of the 15 Best Small Cap AI Stocks to Buy Right Now. In this article, we are going to take a look at where BILL Holdings, Inc. (NYSE:BILL) stands against the other small cap AI stocks.
Smaller-cap AI stocks may present potentially attractive investment opportunities for investors seeking exposure beyond the already well-known Big Tech giants. Many of these companies operate quietly under the radar, developing specialized AI products, software, and applications that could significantly impact various sectors, from healthcare and finance to cybersecurity and manufacturing. While large-cap technology leaders have already benefited greatly from early enthusiasm and experienced significant stock-price appreciation during calendar 2023-2024, smaller AI-focused companies often remain relatively undiscovered and undervalued. This positions them as potential second-wave beneficiaries, providing investors with an attractive entry point into the next stage of AI-driven growth. As the market increasingly recognizes the commercial viability and disruptive potential of these innovative, smaller-cap players, their stocks could offer substantial upside compared to their larger, more mature counterparts.
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The first wave of AI beneficiaries during 2023–2024 was largely limited to GPU manufacturers, semiconductor equipment providers involved in GPU production, and Big Tech companies that acquired GPUs and built data centers to secure the computing power needed to support the AI revolution. However, after two years of aggressive spending, 2025 is shaping up to be the year that determines whether further capacity is truly needed. The actual capabilities of AI remain largely at the level seen in early 2023 when ChatGPT was first introduced. With no major technological breakthrough to date, analysts have begun to question whether such massive hardware investments are justified. The issue was further amplified in January 2025, when a Chinese startup claimed to have trained an AI model with performance comparable to U.S. large language models – at only a fraction of the cost. If true, the Chinese firm DeepSeek could disrupt the AI training and inferencing market, potentially undermining the prevailing thesis that the world needs hundreds of billions in GPU infrastructure to meet computing power demand.
The aforementioned developments may have important implications for global markets. On one hand, the first-wave beneficiaries of AI could face a correction as demand for GPUs weakens and the substantial hardware investments made in 2023–2024 prove excessive. On the other hand, a second wave of beneficiaries may emerge, as Chinese technology drives down the cost of AI training and inferencing, effectively lowering barriers to entry for startups and companies operating on tight budgets. With significantly reduced costs to enter the market, hundreds of startups and small-cap companies may accelerate the development of AI products and solutions with practical, mass-market use cases. If successful, we could witness the rise of an entirely new cohort of winners. With that in mind, the key takeaway for readers is that this may be the right time to look for potential second-wave AI winners – particularly among small-cap companies with market capitalizations under $5 billion.
Also, macroeconomic conditions may become more favorable in the coming quarters, further supporting smaller-cap companies. Despite the Fed keeping interest rates steady at the latest FOMC meeting, we believe that deteriorating GDP growth forecasts from the Atlanta Fed – driven by early Trump 2.0 policies – may increase the likelihood of interest rate cuts in upcoming meetings. This view is reinforced by the impending public debt rollover, which may need to be financed at lower interest rates to maintain the US debt servicing capacity at reasonably healthy levels. Lower interest rates are generally favorable for small caps, as they reduce financing costs and support capital allocation toward growth projects.
A group of finance professionals hard at work in an office, signifying accounts payable and accounts receivable.
Our Methodology
For this article, we used Finviz to screen for technology stocks under a $5 billion market cap. Although small-cap stocks typically have a market cap under $2 billion, we included companies below $5 billion to add more AI firms. We then manually selected companies that have significant revenue exposure or potential growth opportunities related to AI products & solutions. Finally, we compared the list with our proprietary Q4 2024 database of hedge funds’ ownership and included in the article the top 15 stocks with the largest number of hedge funds that own the stock.
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).
BILL Holdings, Inc. (NYSE:BILL)
Number of Hedge Fund Holders: 64
BILL Holdings, Inc. (NYSE:BILL) is a financial technology company that provides cloud-based software for automating back-office financial operations for small and mid-sized businesses. Its platform streamlines processes such as accounts payable, accounts receivable, expense management, and payments. The company enables integration with major accounting software platforms, facilitating real-time visibility and improved cash flow management. BILL incorporates AI to automate data entry, detect errors, and optimize payment workflows, supporting greater efficiency and scalability in financial operations.
BILL Holdings, Inc. (NYSE:BILL) has demonstrated significant growth, having increased revenue by over 10x in the last 5 years and currently approaching $1.5 billion in revenue. The company has defined and leads the financial operations category, with approximately 0.5 million businesses on their platform and processes about 1% of US GDP. The company’s market opportunity remains substantial with over 6 million potential business customers in the US that have employees. BILL’s competitive advantages stem from its payment engine capabilities, processing transactions across 8 different payment modalities and 12 different payment rails with a fraud loss rate of less than 1 basis point. The company has demonstrated strong financial performance with free cash flow consistently around 20% and has grown ex-float operating income from 1% two years ago to 7% in the second quarter.
BILL Holdings, Inc. (NYSE:BILL) is making strategic investments of $45 million in fiscal year 2025 across four key areas: expanding payment solutions, improving large supplier experience, deepening relationships with accounting firms, and driving expansion in embedded solutions. The company is leveraging AI capabilities to enhance its platform, utilizing its extensive data set of millions of weekly documents and billions in weekly payment flows. Looking forward, management remains confident in achieving multiple years of 20% growth, driven by their massive market opportunity, cross-selling capabilities, and new payment product innovations.
Overall BILL ranks 1st on our list of the 15 best small cap AI stocks to buy right now. While we acknowledge the potential of BILL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BILL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.