Artificial intelligence stocks have been on an absolute tear lately. The valuations of big, well-known AI names like Nvidia (NASDAQ:NVDA) have skyrocketed as investors pile into anything related to this red-hot sector. While we’ve seen some cooling off in certain pockets of tech recently, AI stocks are still massively up. Their valuations already price in years of flawless execution and blockbuster growth.
But that doesn’t mean there aren’t still some diamonds in the rough out there. Not all AI stocks have surged to record highs. There are a few AI sleeper stocks still flying under Wall Street’s radar, with valuations that don’t yet account for their full disruptive potential. Buying these quiet winners before the crowd could allow savvy investors to generate outsized returns if the AI boom continues.
Nerdy (NRDY)
This live learning company utilizes AI and software to educate students in an engaging way.
Nerdy (NYSE:NRDY) has certainly been on a rollercoaster ride, with the stock essentially going nowhere for nearly two years now and down a gut-wrenching 76% from its peak in 2021. But in my view, this company still has tremendous upside potential as it continues leveraging its reputation as an AI-focused business.
While Nerdy may not be using advanced AI capabilities like conversational bots or deep learning algorithms, simply branding itself as an AI company has powerful perception benefits these days. The AI label alone can send stocks soaring, even if the company’s actual technology is not cutting-edge.
Nerdy is growing revenue rapidly, expected to expand around 20% annually going forward. Additionally, profitability is coming soon, with breakeven around 2026/2027. Yet, the stock trades at just 1.3-times sales, an astoundingly-low multiple for a supposed AI firm. No other AI software company I know of has such a modest valuation.
Clearly, Mr. Market has not bought into Nerdy’s AI story just yet. But as investors chase the next wave of AI winners, I expect Nerdy to get noticed. Its growth trajectory and low valuation could make it an appealing AI turnaround candidate. While Nerdy may be exaggerating its AI capabilities, perception is a reality in this market. Any company labeled as an AI disruptor seems capable of exploding higher, fundamentals aside. Nerdy reached $5.3 back in Aug. 2023 and I see no reason it can’t do so again if this AI euphoria continues. The risk/reward here looks compelling.
UiPath (PATH)
I’ve long been bullish on robotics. Autonomous machines will likely represent the next phase of AI’s expansion. While white-collar office jobs were initially thought safest from displacement, AI is now automating many repetitive administrative tasks. However, blue-collar manufacturing and construction jobs remain plentiful, with humans still preferred for intricate skilled labor. I expect the robotics wave to disrupt these sectors next. Robots are already replacing numerous manual jobs.
Of course, robots performing complex dexterous movements are still in early development. But UiPath (NYSE:PATH) provides essential robotic process automation software to help businesses use primitive robots for basic repetitive tasks. This niche has tremendous growth potential as companies seek to cut costs through automation. Despite trading at 40-times earnings, UiPath has vast expansion opportunities ahead to justify its valuation.
Wall Street expects more than 45% earnings per share growth in the next three years for UiPath. As industrial automation advances, UiPath’s innovative software should remain an integral component. This is a long-term winner that could deliver explosive returns for patient investors.
FiscalNote (NOTE)
FiscalNote (NYSE:NOTE) has notably lagged behind the broader software sector. The company has been essentially moving sideways over the past year, and down a terrifying 83% from its peak. However, I see sizable recovery potential for this AI-powered data analytics provider as its financial results improve.
FiscalNote is projected to return to positive revenue growth and grow revenue by 8% starting next year. That’s a modest pace, but stable enough given its cash burn challenges. More importantly, losses have begun decelerating significantly. In 2022, FiscalNote lost $218 million on just $114 million in sales. But in 2023, losses narrowed to $115 million on $134 million in revenue. For 2025, we’re looking at just $26 million in losses on $135 million in revenue.
If FiscalNote stays on this trajectory, profitability may not be far off. And that could send the battered stock soaring back toward its former highs. Unlike other AI stocks with nosebleed valuations, NOTE stock trades at a mere 1.8-times sales after its crash. The growth rebound combined with low expectations creates the perfect setup for an upside surprise.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
