It’s certainly a very good time to be in the AI business. After all, the technology has been getting huge amounts of positive publicity since December 2022, and it’s being viewed as a powerful, helpful tool for humans. As a result, many AI stocks, such as Palantir (NYSE:PLTR), SoundhoundAI (NASDAQ:SOUN) and Nvidia (NASDAQ:NVDA), have skyrocketed. But there are still a multitude of small-cap AI stocks that are laboring in obscurity. These firms have all the advantages of being involved in AI, but their stocks do not yet come close to reflecting their tremendous potential. Here are three small-cap growth stocks to buy.
Innodata (INOD)
Innodata (NASDAQ:INOD) uses data sets to train AI models for other firms. Innodata also helps businesses direct their AI models to perform certain tasks. Additionally, the firm digitalizes medical records and provides a marketing platform.
Many large companies, including IBM (NYSE:IBM), Palantir and Accenture (NYSE:ACN), are helping firms implement AI. But my sense is that Innodata is more technical and enables more detailed capabilities than many of these firms. Moreover, Innodata, which was founded back in 1988, is largely dedicated to AI and likely has much more experience with the technology than many if not most of its competitors.
Last quarter, the firm’s top line jumped 41% versus the same period a year earlier to $26.5 million. Its EBITDA, excluding certain items, came in at $3.8 million, up from $800,000 in Q1 of 2023.
Investor’s Business Daily gives INOD stock an Accumulation/Distribution grade of B. That’s a high grade for a small-cap stock and indicates that many institutional investors are starting to buy INOD stock.
Given the firm’s strong outlook and powerful growth, along with the Street’s interest in the name, INOD stock is one of the top small-cap growth stocks to buy.
Mitek Systems (MITK)
Mitek Systems (NASDAQ:MITK) provides identity software that utilizes AI. Currently, its technology is used to enable consumers to deposit checks with their smartphones and to detect check fraud. However, given increases in online fraud and continuous advances in AI, along with increased interest in the technology, I expect Mitek to use its technology to introduce new, highly successful products over the longer term. Indeed, the firm has developed voice authentication technology that it says “opens up several new avenues for growth. “
During Mitek’s FY that ended in September 2023, its revenue came in at $172.6 million, up from $144.8 million during the previous fiscal year. Additionally, it generated operating income of $21.1 million. up from $15.7 million during the previous year.
Mitek has a low forward price-earnings ratio of 14.4 times.
iCAD (ICAD)
iCAD’s (NASDAQ:ICAD) products utilize AI to more accurately detect breast cancer. Last quarter, the company’s sales team began systematically using lead generation programs for the first time and added four new sales representatives to its team which had previously utilized six sales representatives. Additionally, in December, the firm added a new head of North American sales in December. Finally, iCAD worked harder to obtain more revenue from its existing customers.
The changes enabled iCAD to grow very rapid as its revenue climbed 14% last quarter versus the same period earlier to $4.95 million. Making the gain even more impressive, iCAD had divested its cancer therapy business, Xoft, at the end of last year.
Also impressively, the firm made significant, new deals last quarter with entities in Turkey, Israel, Serbia and France in Q1. These contracts indicate that the company can generate meaningful revenue going forward from countries outside of North America.
I believe that iCAD’s current market capitalization of $43 million is many times below its long-term potential.
On the date of publication, Larry Ramer held a long position in ICAD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
