We recently compiled a list of the 10 Best Penny Stocks to Buy for 2025. In this article, we are going to take a look at where Taboola.com Ltd. (NASDAQ:TBLA) stands against the other penny stocks.

The US stock market has been on a roll owing to a powerful rally in the technology sector. The S&P 500 has gained more than 23%, driven by gains in mega-cap stocks amid the artificial intelligence frenzy. Likewise, the gains have come amid a resilient US economy that has steered clear of recession. Improving monetary policy outlook on the US Federal Reserve cutting interest rate has also strengthened investor sentiments on equities.

While small-cap stocks have lagged behind the overall market, they are drawing special attention as most appear to be trading at highly discounted valuations. Often considered speculative investments due to their low price point and smaller market presence, penny stocks are turning out to be attractive investment plays heading into 2025.

READ ALSO: 10 Best Stocks to Buy According to Billionaire D.E. Shaw and 10 Best Stocks to Buy According to Billionaire David Einhorn.

According to VettaFi’s Todd Rosenbluth, 2025 could be the year for small-cap stocks that have lagged the overall market but are backed by solid underlying fundamentals.

“Small caps are going to become more in favor in 2025,” Rosenbluth said on CNBC’s “ETF Edge”. “They started to perk up since the election and are heading into the election as interest rates have been coming down.”

There is an increased focus on the best penny stocks to buy for 2025, as most are trading at discounted valuations. The discounted valuations come as the Russell 2000 is only up 11% for the year compared to a 23% gain for the S&P 500. The fact that penny stocks offer the potential for long-term capital appreciations supported by durable profit growth affirms why they are solid long-term plays. Fundstrat Global Advisors’ managing partner, Tom Lee, has already reiterated that small-cap stocks are trading at a discount with a medium price-to-earnings multiple of 10.

“Since 1987, small caps have traded on a medium P/E basis to a premium of the S&P 500. The S&P is at 17 times. I think small caps could in the next couple of years outperform by more than 100%,” Lee said in an interview with CNBC.

New Street Advisors CEO Delano Saporu shares similar sentiments; he believes small-cap stocks are well poised to outperform in 2025, having underperformed over the past year. Ever since Donald Trump won the election, penny stocks have advanced amid growing enthusiasm around the potential easing of regulations on businesses.

Profit taking in the magnificent seven stocks and other large-cap stocks on a roll is expected to benefit penny stocks. In addition, the outlook for penny stocks remains solid as investors rotate out of money market accounts as the Federal Reserve cuts interest rates as part of the easing policy spree.

Amid the profit-taking spree, the best penny stock to buy for 2025 should offer a way of diversifying an investment portfolio. By taking a small portion of an extensive portfolio and focusing on high-risk reward opportunities in penny stocks, investors can position themselves for solid returns in case of a breakout.

Our Methodology

To make our list of Best Penny Stocks to Buy for 2025, we scanned the US markets for stocks trading for less than $5. We settled on stocks with solid underlying fundamentals and tremendous upside potential. Finally we ranked the stocks in ascending order based on their upside potential.

Note: All data is as of December 27, 2024

At Insider Monkey, we are obsessed with 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).

Taboola.com Ltd. (NASDAQ:TBLA)

Stock Upside Potential: 49.05%

Number of Hedge Fund Holders: 27

Taboola.com Ltd. (NASDAQ:TBLA) is a communication services company that operates an artificial intelligence-based algorithmic engine platform. It offers Taboola, a platform that partners with websites, devices, and mobile apps to recommend editorial content and advertisements on the open web to users. It is one of the best penny stocks to buy for 2025 amid the artificial intelligence race.

Taboola.com Ltd. (NASDAQ:TBLA) is already positioned for opportunities in the multi-billion digital advertising landscape. It has already launched AI-powered advertising-focused bidding technology. Maximize Conversions is the new technology that Taboola is using to target advertisers, allowing them to drive more conversions and lower campaign costs. To help publishers increase traffic, TBLA unveiled Taboola for Audience, a new AI-powered technology.

In addition to targeting digital advertising opportunities, Taboola.com Ltd. (NASDAQ:TBLA) has inked a strategic partnership with DoubleVerify, a leading software platform for digital media measurement and data analytics. The two are joining forces to offer brands a more effective way of customizing brand safety. The integration should also give brands confidence in their advertising investments.

Taboola.com Ltd. (NASDAQ:TBLA) delivered solid Q3 results as Ex-TAC gross profits increased by 30% to $166.4 million. Revenue was up by 20% to $433 million.

Overall TBLA ranks 8th on our list of the best penny stock to buy for 2025. While we acknowledge the potential of TBLA as an investment, our conviction lies in the belief that some 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 TBLA 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.