Artificial intelligence and penny stocks don’t necessarily go together like peanut butter and jelly, but there is some allure to AI penny stocks for risk-tolerant investors.
In 2023, companies were bending over backward to announce their AI bona fides. That trend will continue in 2024. But analysts and investors alike are becoming more selective. Specifically, they want to see AI that makes a difference and that contributes to a company’s bottom lines.
That will typically lead investors to large-cap stocks like Microsoft (NASDAQ:MSFT). However, those large-cap companies come with a rich valuation. A better alternative for risk-tolerant investors may come from AI penny stocks. These are loosely defined as stocks that trade for less than $5 per share.
The benefit of penny stocks is that investors can own a significant amount of shares for a minimal investment. And if they discover the next Amazon (NASDAQ:AMZN) or Apple (NASDAQ:AAPL) in their infancy, their portfolios are set.
Nevertheless, finding the best AI penny stocks requires as much, if not more, discernment than finding other stocks. Here are three candidates to consider in 2024.
2U (TWOU)
Some love it; some hate it, but online learning is here to stay. 2U (NASDAQ:TWOU) operates an online learning platform. And in May 2023, the company launched two AI-powered learning assistants build on ChatGPT. The assistants reside on the company’s edX platform.
So far, the launch isn’t making much, if any, impact on the company’s revenue and – more importantly – it’s earnings, which remain negative. This is a very small company with a market cap of just over $72 million. Micro-cap stocks such as TWOU were punished in 2023.
Nevertheless, the company has had the support of Cathie Wood at different times. That may be a reason that analysts remain bullish on TWOU stock. The consensus price target of $2.40 is 172% higher than the price as of the market close on January 16, 2024. The stock also gets a Strong Buy rating from one out of the seven analysts that offer a rating.
One more thing that speculative investors should consider is that over 90% of the company’s stock is owned by institutional investors. That’s not common for a tiny company like 2U. Do with that as you will.
Predictive Oncology (POAI)
One of the most compelling possibilities for AI is in the field of drug development. Predictive Oncology (NASDAQ:POAI) intends to make that process significantly shorter. The company says it currently takes 12 years, on average, to bring a new cancer drug to market. And in the last 20 years, only 115 out of approximately 1,500 cancer drugs successfully made it through the clinical trial stage.
That’s where AI and machine learning come into play. The company’s PeDAL AI platform has as its goal the ability to identify the drug candidates with the highest possibility for success, and to do so in less time.
In November 2023, Predictive Oncology completed a multi-year study with UPMC Magee-Womens Hospital in Pittsburgh. The goal of the study was to use AI and machine learning models to learn associations between the datasets and the short- and long-term survival rates of ovarian cancer patients.
That’s the good news. The bad news is that Predictive Oncology is not profitable, generates very little revenue, and continues to burn through cash. There is currently no analyst coverage on POAI stock, which is down 70% in the last 12 months. Nevertheless, if you can stomach that kind of risk, the potential upside for a company that may help save lives is hard to ignore.
Rekor Systems (REKR)
Rekor Systems (NASDAQ:REKR) is a technology company that uses AI and machine learning for “intelligent infrastructure solutions.” This includes areas such as smart cities, however, one area that jumps out as we enter an election year is public safety.
Many cities are wrestling with the idea of how to do more with less. Tools such as Rekor Scout, which “enables accurate license plate and vehicle recognition” is one solution that Rekor provides.
Unlike many AI penny stocks, REKR stock is up 91% in the last 12 months. That may have some investors concerned that any future growth is fully priced in. The stock isn’t widely covered by analysts and only 40% of the stock is owned by institutional investors. However, two analysts do give the stock a price target of $4.50 which would be a 16% upside from its current level.
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.
