For most investors, the goal is to buy low and sell high. Then a megatrend like artificial intelligence (AI) comes along, and the tendency to chase stocks higher kicks in. FOMO (fear of missing out) can affect even patient investors. However, while split-adjusted Nvidia (NASDAQ:NVDA) looks inviting, it may be time to look for the most undervalued AI penny stocks. This is where the real action may come from.
Penny stocks can be volatile, and many are cheap for a reason. Specifically, many companies have poor fundamentals that will likely prevent them from living up to their potential. That is particularly true in an emerging sector like artificial intelligence (AI). Many companies have entered the market, with the only compelling story being that they offer AI in one form or another.
Moving forward, the question is which companies can monetize AI meaningfully. The payoff may not be immediate. But if you have patience, here are three of the most undervalued AI stocks you can consider.
SoundHound AI (SOUN)
Can you put a stock in a group of the most undervalued AI penny stocks when it’s up 59% in the past 12 months and 125% in 2024? If the company is SoundHound AI (NASDAQ:SOUN), that appears to be the case.
SoundHound offers its customers a “voice AI platform that’s revolutionary in its ability to understand speech and yet beautifully simple in how it responds.” The company’s goal is to make conversational intelligence more human. And it’s collecting an impressive roster of customers.
But this is still a small-cap company with just a $1.85 billion market cap. And even though SoundHound is growing revenue impressively, it’s not yet profitable. That’s one reason that the stock has fallen sharply after climbing to nearly $9 per share in mid-March 2024 after Nvidia announced it was buying a piece of the company.
If you want to invest in SOUN stock, you must be aware that it carries 23% short interest, which has grown significantly in the past month. In that time, the stock has been down 6.2%, which has extended its 20% decline in the last three months.
BigBear.ai (BBAI)
BigBear.ai (NASDAQ:BBAI) stock is down 36% in 2024, but this is a recent development. As recently as March 2024, the stock was over $4 a share, which is nearly triple the company’s current price.
BigBear.ai is in the Big Data business. It’s a growing sector, which makes it concerning that the company is not growing its revenue and remains unprofitable. BBAI stock is down 43% in the last three months, and with short interest around 16%, it could fall further.
The hope comes from the company’s recent acquisition of Pangiam, which will expand BigBear’s core capabilities. Ideally, this will allow it to expand its customer base. That will take time, and many investors may feel there are better options.
I can only go by what the analysts say. BBAI stock is covered by six analysts, which is fairly impressive for such a small company. Three of those six have a Strong Buy rating on the stock, and the consensus price target of $3.63 represents a 158% upside from its closing price on June 11, 2024.
Ontrak (OTRK)
Ontrak (NASDAQ:OTRK) is a true penny stock. It is a tiny company with a market cap of just over $11 million. However, the AI- and technology-enabled behavioral health company is using AI to augment personal care and improve patient outcomes. For its customers, Ontrak forecasts cost savings and a higher return on investment.
The key to the company’s bullish thesis is the nationwide adoption of its WholeHealth+ program. Currently, Ontrak is accepted in 30 states and the District of Columbia.
However, like many small-cap companies, Ontrak is not profitable, revenue is not growing significantly, and the company has little cash on hand. As evidence of that last point, the company announced an 8-for-1 reverse stock split in 2023. Those can be the kiss of death for small companies. Nevertheless, if you’re looking for an under-the-radar pick among the most undervalued AI penny stocks, Ontrak may be a sneaky choice.
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.
