EVLV - 3 Small-Cap AI Stocks Ready to Challenge the Giants
2024-07-11 10:14:00 ET
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If projections are right, the growth of artificial intelligence ( AI ) stocks may dwarf the performance of the best internet stocks. For now, a lot of those dollars are focused in NVIDIA (NASDAQ: NVDA ). But if you’re looking for stocks that your future self will thank you for buying, it’s time to look at small-cap AI stocks .
Small-cap stocks have lagged the broader market with good reason. Many of these companies are not yet profitable, and some are even in the pre-revenue stage. Investors could overlook that when money was cheap. But with interest rates moving from nearly zero percent to 5% in the span of a year, many of these companies are struggling to satisfy their need for cash.
The small-cap AI stocks in this article are already generating revenue and, in some cases, are turning a profit. I can’t stress enough how important that is. Earnings growth is the best predictor of future stock price growth.
To keep it real, these stocks may not 10x in the next 12-18 months. But if you have the time to scale into a position, these stocks have characteristics that make them attractive to buy today for potentially explosive gains in the future.
Evolv Technologies (EVLV)
Evolv Technologies (NASDAQ: EVLV ) is a manufacturer of AI-powered touchless screening systems. Since 2011, you can’t go into a major venue without some level of security check. In recent years, you may have noticed a better traffic flow . That’s because of a system such as the Evolv Express. The goal is to have a screening system that can differentiate between weapons and personal items without the intrusive layers of pat downs and bag inspections.
The Evolv Express is the company’s proprietary software and hardware solution that it delivers to consumers using a subscription model. This has created a category of Security-as-a-Service. The company screened more than 1 billion people in 2023 .
Evolv is not profitable yet, but it is generating, and growing revenue. And to be fair, critics will say that Evolv doesn’t have a moat. However, the company estimates this to be a $20 billion market. To put that in context, Evolv generated approximately $79 million last year. There’s plenty of opportunity for growth. But the company also has a high retention rate. So once they get a customer, they’ve been able to keep them.
Innodata (INOD)
If you’ve been observing the AI space, you can understand that AI is only as good as the model that trains it. That’s where Innodata (NASDAQ: INOD ) comes in. As Josh Enomoto wrote, “… in order for AI to truly blossom, it needs to be put to genuinely productive use .”
The company already has seven Big Tech clients with five of those companies being among the Magnificent 7 stocks that continue to drive the market. This is significant because Innodata believes we are in the midst of a multi-year generative AI arms race among this group of tech giants.
Innodats has been profitable in its last three quarters and revenue is up year-over-year in those quarters. INOD stock is up 117% in 2024. The stock only has one analyst covering it which is not unusual for a company with a market cap of just $480 million. But that analyst does have a price target of $24 which is 44% higher than the stock’s closing price on June 10, 2024.
Verint Systems (VRNT)
With a market cap of $1.89 billion, Verint Systems (NASDAQ: VRNT ) may not be among the small-cap AI stocks for much longer. The buying thesis for Verint is simple enough. Companies and brands are working hard to elevate the customer experience, but they need to do so in a cost-effective way.
Before AI, the experience was clunky. And although AI is still in early stages, it’s getting better. That’s where Verint comes in. It’s working to deliver customer experience (CX) automation that increases automation across the entire enterprise.
Verint missed on earnings in its most recent report and that’s why VRNT stock is down 16% in the last month. However, the stock remains up 12% in 2024. Revenue is down from where it was at its peak in 2022, but the company is increasing its guidance. Specifically, the company believes it will grow non-GAAP diluted EPS faster than revenue in the next year.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Chris Markoch had a LONG position in EVLV. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.
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