Best 11 Small Cap AI Stocks in 2024

If you find yourself drawn to AI stocks, you're certainly not alone. NVIDIA has been making headlines with its remarkable ascent in market value, highlighting the increasing interest from companies to integrate AI technologies.

The 2024 CompTIA IT Industry Outlook report offers insight into this burgeoning trend, indicating that 22% of organizations are vigorously incorporating AI into their products and operations. Meanwhile, 33% of companies are engaging with AI technologies, albeit in a more restrained manner. In this blog we will discuss best 11 small cap AI stocks in 2024.

Why Invest in Small Cap Stocks?

Small-cap stocks refer to shares of companies with a relatively small market capitalization. Market capitalization, or market cap, is the total value of a company's outstanding shares of stock and is calculated by multiplying the current market price of one share by the total number of outstanding shares. Here are the reasons why investing in small cap stocks:

Potential for Undervaluation: Small-cap stocks are sometimes overlooked by institutional investors and analysts, which can lead to undervaluation. Savvy investors can sometimes find hidden gems that are undervalued by the market.

Niche Market Leadership: Many small-cap companies are leaders in their niche markets or are developing innovative products and services. This specialization can provide a competitive edge and drive growth.

11 Best-performing Small Cap AI Stocks

BigBear.ai Holdings (BBAI)

Sector: Decision Intelligence Solutions

Key Highlights: It is a data analytics company using AI for decision-making, focusing on supply chain management, cybersecurity, autonomous systems, and government/military operations. Competes with companies like Palantir and C3.ai, but has a smaller market cap of $480 million.

Innodata(INOD)

Sector: Data Collection and Training Solutions

Key Highlights: Specializes in data collection, cleansing, and training. Reported $26.1 million in fourth-quarter revenue, up 35% year-over-year.

Duos Technologies(DUOT)

Sector: Enterprise Information Management

Key Highlights: Provides AI algorithm development and deployment. Notable clients include the U.S. Department of Homeland Security and Amtrak.

SoundHound AI Inc. (SOUN)

Sector: Audio and Speech Recognition

Key Highlights: It’s a smaller company with growth potential, has seen its shares rise by 145% year to date. The company specializes in voice, sound, and language-recognition software for various industries like restaurants and automakers. SoundHound has a large addressable market, especially in providing AI services to businesses like restaurants and potentially the auto industry.

Sweetgreen Inc. (SG)

Sector: Food Industry Tech

Key Highlights: It utilizes AI for enhancing customer experience and operational efficiency in the food industry. The company's restaurant-level profit margin improved from 11% to 16%, while adjusted EBITDA loss decreased from $17.9 million to $1.8 million.

AppFolio Inc. (APPF)

Sector: Real Estate Management Software

Key Highlights: It provides cloud-based solutions for property management, with 23% revenue growth forecasted for the fiscal year. AppFolio will join the S&P Mid-Cap 400 Index, potentially leading to increased demand for the stock.

BellRing Brands Inc. (BRBR)

Sector: Nutritional Supplements

Key Highlights: BellRing is a market leader with loyal customers but has concerns about debt, competition, and valuation. It expects growth opportunities in the RTD segment due to increasing household penetration.

Eagle Materials Inc. (EXP)

Sector: Building Products

Key Highlights: It utilizes AI for optimizing manufacturing processes and supply chain management in the construction materials industry. While Eagle Materials has shown solid operating results, its stock valuation is considered high, being fully valued based on earnings and sales multiples. Management's performance is praised, but caution is advised due to the cyclical nature of the building materials industry.

Guidewire Software Inc. (GWRE)

Sector: Insurance Software

Key Highlights: It provides an AI-powered platform for property and casualty insurance companies. Guidewire Software showed positive performance in the latest quarter with revenue growth and strong subscription revenue growth. Analyst predicts revenue growth acceleration in the coming years, leading to a positive impact on valuation multiples.

Informatica Inc. (INFA)

Sector: Data Management Software

Key Highlights: It offers AI-driven solutions for data management and analytics. Analyst recommends a buy rating for INFA due to expected growth acceleration, particularly in cloud revenue, and margin expansion driven by large customer penetration.

MKS Instruments Inc. (MKSI)

Sector: Process Control Technologies

Key Highlights: It employs AI in the development of process control solutions for various industries. Semiconductors performed well in Q1 2024, outperforming most sectors due to a Fed-induced rally and dovish Fed policy.

Learn more about what specific factors should be considered when evaluating small-cap AI stocks for investment.

Conlusion

Remember, investing in small-cap stocks, especially in a rapidly evolving sector like AI, involves higher volatility and risk. It's crucial to conduct thorough research and consider diversifying your investment portfolio.