The era of artificial intelligence is upon us. By 2030, AI is expected to contribute $15.7 trillion to the global economy. And while many of the large-cap tech giants are making a splash, it’s frequently the smallest companies that produce the largest gains. That’s why it’s a good time to look at AI penny stocks with huge potential.
If you were fortunate enough to invest in one or more of the blue-chip AI stocks like Nvidia (NASDAQ:NVDA) or Microsoft (NASDAQ:MSFT) you’ve had a nice first half of the year. Those blue-chip companies are likely to be terrific long-term (maybe even forever) stocks. And AI will be a part of that. However, the beauty of looking at small-cap AI stocks is that they occupy niche industries. That may not mean impressive revenue now, but it also means they have the potential to achieve a first-mover advantage. At the very least, that may make them attractive as a takeover target.
Here are seven AI penny stocks to watch as you look to make life-changing money from the advance of artificial intelligence.
SoundHound AI (SOUN)
SoundHound (NASDAQ:SOUN) uses AI as part of its voice and audio AI platform. The company’s technology, Houndify, creates a voice-assisted experience that simulates regular conversation. One way to think about Houndify is as a less robotic Alexa or Siri.
Impressively, SoundHound has numerous partnerships in applications ranging from data centers to electric vehicles. In 2022, the company generated over $31 million in revenue. And in the first quarter of 2023, it reported revenue of $6.71 million. That was 56% higher than the first quarter of 2022.
On the bottom line, the results were equally as impressive. In the first quarter of 2022, the company posted negative earnings per share of $2. It shaved that to a negative EPS of just 12 cents in its last quarter. However, while the company is targeting positive GAAP operating cash flow by the end of this year, profitability will take some time.
Most small-cap investors are comfortable will be comfortable with a company that has negative earnings. That will take care of itself. In the meantime, SoundHound faces a large amount of short interest. That combined with only about 25% institutional ownership makes this an opportunity and a risk for retail investors.
Evolv Technologies (EVLV)
In the opening, I said that many small-cap AI stocks occupy niche industries. Evolv Technologies (NASDAQ:EVLV) exemplifies that as a leader in creating Ai-based weapons detection for security screening.
The company’s premier product is Evolv Express which the company describes as a weapons detection system that “combines powerful sensor technology with proven artificial intelligence, security ecosystem integrations, and comprehensive venue analytics to ensure safer, more accurate threat detection at an unprecedented speed and volume.”
Right away, you can imagine the potential applications. Airports, entertainment and sporting venues are just two examples. But also consider the possibility in schools and hospitals. It’s not hyperbole to suggest that this company’s technology could save lives.
EVLV stock has been a fast mover in 2023. And by the time you read this it may have already cracked the $5 level. But that should be just the beginning. Institutional interest will remain small until the stock cracks the $10 mark which makes now a good time to get in.
Rekor Systems (REKR)
Another choice among AI penny stocks with huge potential is Rekor Systems (NASDAQ:REKR). If you think that infrastructure stocks are exciting then you’ll appreciate the buying thesis for Rekor Systems.
The company leverages AI, machine learning, and holistic data to identify the most pressing infrastructure concerns facing its clients. And while one of its major clients are in the United States, Rekor also operates in Canada and other international markets. The company is also using AI in the area of Roadway Intelligence. This involves collecting, connecting and organizing “the world’s mobility data to deliver revolutionary roadway intelligence…”
That being said, Rekor is not generating much revenue. But in the first quarter of 2023, the company nearly doubled its revenue on a year-over-year basis. And since 2018, the company has been growing its revenue at a compound annual growth rate (CAGR) of 42.17%.
Remark (MARK)
Remark Holdings (NASDAQ:MARK) is one of the riskier stocks on this list. The company develops and deploys AI-based solutions for business and software developers. This covers a gamut of applications including facial recognition software, AI-powered retail analytics, virtual healthcare solutions, AI-based vision and computing, deep learning video analytics, situational awareness and forensic investigations.
That’s not exactly a niche company. But the company’s jack of all trades strategy may pay off as demand for AI solutions continues to soar.
However, the company is not generating a lot of revenue to begin with and in its most recent quarter, it posted an alarming year-over-year revenue decline. That explains why the stock is back to trading under $1 dollar after surging nearly 70% in the fist two months of 2023. Again, MARK stock is a risk. But as part of a speculative AI stock, it may be worth taking a small position and building over time.
Predictive Oncology (POAI)
The next two stocks on this list of AI penny stocks with huge potential combine the benefits of AI with biotechnology. And both have similar missions. The first of these is Predictive Oncology (NASDAQ:POAI).
The company uses a proprietary AI platform to identify drugs that are likely to work against specific tumors. To facilitate this, the company has a bank of 150,000 tumor samples. In March of this year, the company announced a partnership with Integra Therapeutics. that will enhance Integra’s ability to use gene editing for future cancer therapies.
Like every company on this list, Predictive Oncology is not yet profitable. However, it’s been increasing revenue by 27% in the last five years.
Before investors dive in, they should be advised that the company conducted a 1-for-20 reverse stock split. While these splits are rarely good for investors, the company took the action for the sole purpose of staying in compliance with NASDAQ requirements.
Lantern Pharma (LTRN)
Lantern Pharma (NASDAQ:LTRN) is another company leveraging the power of AI with biotech to fight cancer. Specifically, the company’s RADR platform analyzes over 25 billion data points using a combination of machine learning, AI and advanced genomics. This allows the company to identify signatures in the human genome that may correlate to specific drug responses and identifies compounds that should benefit cancer patients.
In June, Lantern announced that it had received approval from the U.S. Food and Drug Admnistration (FDA) to begin Phase 1 testing of its lead candidate LP-184. This is being tested for the treatment of cancerous solid tumors. The company expects to have results in the first half of 2024.
Lantern is a pre-revenue company. This puts the risk of owning the stock in plain view. Still, the race to find a cure for cancer is accelerating in both the public and private sector. And Lantern Pharma is a worthy competitor.
Ideanomics (IDEX)
Ideanomics (NASDAQ:IDEX) is last on this list of AI penny stocks with huge potential. And of all the stocks on this list, as of this writing, IDEX stock is literally trading for pennies. In fact, one concern hanging over IDEX stock is the possibility that it could be delisted.
An obvious, but unpopular, solution could be to issue a reverse stock split. The company is generating revenue so a reverse split could buy it time to scale its business. Nevertheless, reverse stock splits are rarely good, especially when the company is posting uneven revenue.
The opportunity for Ideanomics is in the application of AI to help match fleet managers with the EVs that are right for their needs. It also offers EV financing and EV charging solutions. However, the company is not a pure-play on AI and investors should be sure to understand the opportunity and risk with IDEX stock.
Penny Stocks
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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.
