Summary: Artificial intelligence (AI) and machine learning are transforming the technology landscape at an unprecedented pace. As an investor, you might be interested in exploring the potential of small cap AI stocks, which, despite smaller market capitalization, offer significant growth opportunities in the rapidly expanding AI industry. In this guide, we’ll give an overview of three such artificial intelligence small cap stocks available on online stock trading platforms such as eToro.
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Artificial intelligence small cap stocks: An overview
Definition
By investing in small cap AI stocks, you can capitalize on the massive potential AI has in the technological world while minimizing your exposure to the risks associated with larger, well-established tech giants that are dominating the market.
Of course, since the technology is continuously advancing and AI is becoming increasingly integrated into various industries, small cap AI stocks are potentially an attractive investment strategy not only for those looking to diversify their portfolios but also for those looking for a more long-term investment solution and growth prospects.
Understanding AI and small cap stocks
AI tech focuses on the creation of software and hardware that can perform tasks typically requiring human intelligence. Key components of AI include machine learning and data-driven algorithms. Since the technology is finding more and more uses each day, you’ll find companies that specialize in various AI applications and sectors, such as:
- Healthcare: Machine learning algorithms are used to help diagnose and treat diseases, develop new drugs, personalize treatments, etc.;
- Finance: AI is streamlining decision-making processes in banking and finance with applications such as credit scoring, fraud detection, and wealth management;
- Manufacturing: Industrial automation is improving the efficiency of production processes.
When looking to invest in the stock market, it’s essential to understand that companies are classified based on their market capitalization. Small-cap stocks typically have a market capitalization between $300 million and $2 billion. These companies tend to have higher growth potential, as they are usually in the early stages of development or exploring new sectors and industries. In other words, By investing in small-cap AI stocks, you are placing your bets on the potential future leaders in this technology-driven industry.
However, with high growth potential comes higher risk, so it’s crucial to perform thorough research and analysis before investing in small-cap stocks. Some factors to consider when evaluating small-cap AI stocks:
- Company’s financial health;
- The market demand for the AI solution in question;
- Management team and their experience in the industry and beyond;
- Competitive landscape;
- Potential for scalability and growth.
By understanding the fundamentals of artificial intelligence and carefully evaluating the potential of small-cap AI companies, you can make informed investment decisions in this promising technological sector.
Note
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Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
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How to find artificial intelligence small cap stocks
When assessing the performance of small-cap AI stocks, it is essential to consider several key financial metrics:
- Revenue: Review the company’s performance to understand its sales growth. Rising revenue is a positive sign. Namely, it indicates that the company is expanding its customer base or selling higher-margin products. This is why companies like Nvidia and Microsoft show consistent revenue growth, driven by their robust AI capabilities and investments put into the technology. Microsoft, for example, is one of the chief backers of OpenAI, the company behind ChatGPT;
- Earnings: Assess the company’s net income or profit after accounting for all expenses. Strong earnings growth demonstrates a company’s ability to generate profits over time, which is vital for investors;
- Fundamentals: Analyze metrics such as price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, and return on equity (ROE) to gauge the company’s valuation and investment potential.
The impact of the technology
Another critical aspect of evaluating AI companies is analyzing their technology capabilities and innovation impact. Factors to consider include:
- Data centers: State-of-the-art data storage and processing capabilities are crucial in AI. For example, again, companies like NVIDIA and Alphabet, with its Google Bard model, are heavily invested in data center development, which helps them solidify their blue-chip position;
- AI-focused products and services: Look for companies with a robust AI product portfolio, as this drives revenue and growth potential;
- Innovation, research, and development: Investigate the company’s research and development efforts in the sector. This will provide insight into their ability to stay ahead of the competition and pioneer new AI technologies. Keep in mind that a company does not have to be involved with AI only.
Top 3 artificial intelligence small cap stocks
Our top 3 picks for small cap AI stocks with solid growth potential in 2024 are:
- Lemonade (NYSE: LMND);
- Mitek Systems (NASDAQ: MITK);
- Domo (NASDAQ: DOMO).
1. Lemonade (LMND)
Lemonade is a financial technology company employing AI to streamline insurance processes and cater to a diverse customer base often overlooked by traditional insurers. For example, Maya, its AI-powered chatbot, guides customers through the process of determining the most suitable insurance products and ensures a balance between customer-friendly pricing and profitability.
Lemonade’s data-aggregating and analytical algorithms leverage extensive customer and market data to inform Maya’s decisions. As the platform gains popularity, its AI model and analytics are bound to continuously optimize themselves and grow, providing clients with an increasingly refined and, thus, more attractive product.
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2. Mitek Systems (MITK)
Mitek Systems is a software company specializing in AI-powered digital identity verification and mobile image processing. Their software is employed for tasks such as check deposits and mobile-based account openings.
Mitek announced a strategic partnership with Abrigo, a prominent compliance, credit risk, and lending solutions provided for financial institutions, which could lead to AI product integration in 2024, enabling a broader range of financial institutions to benefit from Mitek’s AI solutions.
Mitek Systems stock price today
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3. Domo (DOMO)
Domo is a prominent cloud software company, focusing on business intelligence tools and data visualization solutions. Its AI tools seek to streamline the process of managing, deploying, and enhancing machine and large language models and offer a wide range of capabilities, including generative AI and natural language processing.
Domo stock price today
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Note
1. Artificial Intelligence Penny Stocks to Buy in 2024;
2. Best AI ETFs.
Where to buy small cap artificial intelligence stocks?
You can invest in AI stocks through various online brokerage and stock trading platforms. Our go-to broker is eToro, a platform with millions of registered accounts, licenses issued by leading financial authorities such as the Financial Industry Regulatory Authority (FINRA), and a range of useful features, such as:
- Commission-free stock trading;
- Access to over 2,000 stocks from 17 different exchanges;
- Charting tools;
- The option to purchase fractional shares.
Highly Rated Stock Trading & Investing Platform
-
Invest in 2,800+ stocks and other assets including 70+ cryptocurrencies and commodities.
-
0% commission on buying stocks - buy in bulk or just a fraction from as little as $10. Other fees apply. For more information, visit etoro.com/trading/fees.
-
Copy top-performing traders in real time, automatically.
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eToro USA is registered with FINRA for securities trading.
Risks associated with AI stocks
Like all investments, AI stocks come with some inherent risks and challenges. Some of them include:
- Competition: The AI sector is highly competitive, with large companies like Amazon investing heavily in AI research and development;
- Technological advancements: Rapid technological advancements mean that AI capabilities are constantly evolving. Companies must keep up with these advancements if they wish to stay competitive;
- Regulatory pressure: The AI industry is relatively new and subject to increasing regulatory scrutiny. Moreover, people and investors worldwide raise ethical concerns related to the technology, so businesses developing AI solutions must do all in their power to address these questions.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about artificial intelligence small cap stocks
Are AI stocks a risky investment?
All investments are risky by nature, but AI stocks come with additional risks because the AI sector is relatively new, and its transformative potential is still a matter of dispute. In addition, there are ethical concerns that might deter some investors.
What are the best artificial intelligence small cap stocks to buy in 2024?
Our top 3 picks for small cap AI stocks with solid growth potential in 2024 are Lemonade (NYSE: LMND), Mitek Systems (NASDAQ: MITK), and Domo (NASDAQ: DOMO).
Where can you buy small cap artificial intelligence stocks?
You can invest in AI stocks of all sorts through online stock trading platforms such as eToro.
