Artificial intelligence is one of the hottest stories of the year. Investors who believe in the technology, or who are simply looking to find growth wherever they can, are flocking into AI stocks. Many of the “big name” AI leaders are also some of the biggest names in the tech sector. That means investors looking for undiscovered AI stocks need to look in different places.
In this case, that means considering penny stocks. The definition of a penny stock has changed over the years. It used to be limited to stocks trading for under a dollar. Today, however, it generally refers to stocks that trade for $5 or less.
These stocks carry significant risks. For example, because they trade for a low price, penny stocks don’t generally get much attention from institutional investors. This means they may not have the volume that drives price action. And penny stocks are generally a target of day traders. This means at any given time, there may be heavy short interest in these stocks.
But like AI itself, AI stocks are all about balancing that risk with the potential reward. Here are three relatively undiscovered AI stocks that may produce outsized gains for patient investors.
SoundHound AI (SOUN)
SoundHound AI (NASDAQ:SOUN) is an emerging leader in conversational AI technology. Specifically, the company says its AI technology processes speech in a manner similar to the human brain. The idea is that SoundHound’s technology will ultimately deliver a faster, more accurate experience that sounds more like natural conversation.
The company has multiple partnerships in the automotive industry, and SoundHound believes that in the future 90% of new cars will include voice assistants. And the company recently signed a contract with Airmeez, a customer engagement platform, to provide its technology for its intelligent voice assistants.
SoundHound went public in 2022 via a special purpose acquisition company (SPAC). The company generated over $30 million in revenue in 2022. However, like many SPAC stocks, SoundHound is not yet profitable, and it’s not expected to be profitable until 2025. That can make some investors nervous about the possibility of the company needing to do a new share offering. But the recent announcement that the company closed a new $125 million loan facility should remove any immediate concerns about the prospect of share dilution for SOUN stock.
Predictive Oncology (POAI)
The next of the AI stocks on this list is Predictive Oncology (NASDAQ:POAI). The company’s mission is “to change the landscape of oncology drug discovery.” The company does this by using machine learning, scientific rigor, and biologics to improve the probability of success and ideally to confidently advance future drug compounds.
And in late March 2023, Predictive Oncology announced a partnership with Integra Therapeutics. Under the terms of the partnership, the companies will work together to enhance Integra’s ability to use gene editing for future cancer therapies.
The company has a solid balance sheet and has increased revenue by 27% over the last five years. However, with a market cap of just over $14 million and only 5% institutional ownership, the company recently took a prudent step to issue a 1-for-20 reverse stock split.
Generally, reverse stock splits are bearish signals. But it depends on the reasons for the reverse stock split. In this case, management says the decision is being made solely to allow the company to stay in compliance with NASDAQ listing requirements. If investors can stomach that, they may want to take a closer look at POAI stock.
Rekor Systems (REKR)
While artificial intelligence is the hottest sector, infrastructure could give it a run for investors’ money. That’s the thesis for the last of our AI stocks, Rekor Systems (NASDAQ:REKR). Rekor is being contracted to use its AI solutions to help identify the most pressing infrastructure concerns and how best to address them.
It’s not a sexy business. And this is a company that is not currently generating much revenue. In fact, in the last year, revenues increased by 74%. But like the other AI stocks on this list, the company is not yet profitable. However, the company is a first mover in transportation management systems, a sector that is expected to grow to $31.8 billion by 2030.
Like many penny stocks in 2021, REKR got caught up in the meme stock movement. REKR stock is down significantly from those lofty highs, but with its AI technology, the company should have stable revenue to drive the stock price.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Chris Markoch did not have (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.