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The artificial intelligence and related (AI&R) sector is going to play a major role in the future of technology and investing in it should generate fantastic returns over the next decade.

The above being said, however, most investors focus on the mega/large cap AI & related (AI&R) stocks (The Magnificent Seven are up 82% YTD) that trade for hundreds of dollars per share yet there are a number of less expensive, and potentially more explosive, micro/small cap AI&R stocks (i.e., stocks with market capitalizations above $50M but less than $2B) that trade for less than $10/share that will get you wider exposure to that growth with less money invested and the top 10 performers in that sector are up 134% YTD - yes, 134%!

Which of the micro/small cap AI&R stocks have the greatest prospects of outperforming the sector in the coming months and years? Well, it all comes down to playing it smart and doing your research and, to help you with that, we present below our new munKNEE  Micro/Small AI Stocks Index consisting of 10 micro/small cap AI&R stocks (average market capitalization of $350M) with a description of their businesses and current price-to-sales ratios (PSRs), short interest percentages, YTD price changes, ranked in descending order, and recent news in the media.

munKNEE  Micro/Small AI Stocks Index

1. Innodata (INOD): +186.9% YTD
   • INOD engages in the provision of AI data preparation services; collecting or creating training data; annotating training data; and training AI algorithms for its customers, as well as AI model deployment and integration services. In August it signed an agreement with its fourth Big Five technology customer to support their generative AI development initiatives.
   • Market Capitalization: $241M
   • *Forward Price-to-Sales Ratio: 3.1
   • **Short Interest: 12.5%
   • Read:
     • Innodata Announces Another Big Five Tech New Customer Win and Reports Second Quarter 2023 Results
2.  Applied Digital Corporation (APLD): +181.0% YTD
   • APLD launched its AI Cloud services in May, 2023, that will provide high-performance computing power for AI applications, including large language model training, graphics rendering, and more, and has signed agreements with three (3) major customers in the last 4 months worth $640M including an agreement with Hewlett Packard in July to make its supercomputers accessible through Applied Digital's AI cloud service to support critical workloads such as AI. In August, APLD also achieved “Elite Partner” status in the NVIDIA Partner Network.
   • Market Capitalization: $550M
   • Forward Price-to-Sales Ratio: 1.5 (excellent)
   • Short Interest: 20.2 (high)
   • Read:
     • Applied Digital Reports Fiscal Fourth Quarter and Full Year 2023 Financial Results
     • Applied Digital Launches Cloud Service to Empower Artificial Intelligence Applications
3. Rekor Systems (REKR): +142.5% YTD
   • REKR leverages AI, machine learning, and holistic data to support the intelligent infrastructure for smart mobility.
   • Market Capitalization: $201M
   • Forward Price-to-Sales Ratio: 4.8
   • Short Interest: 11.2%
   • Read:
     • Is Rekor Systems, A Company Bringing AI To A Largely Untapped Market, On Your Watchlist?
     • Rekor Systems Q2 Financial Results Seem To Highlight The Booming AI Industry's Growth
     • Rekor's Multifaceted AI  Holds Potential for Monitoring Traffic Flow, Emissions, Uninsured Vehicles, Weight And Volume On Roadway
4. Digimarc (DMRC): +136.8% YTD
   • DMRC provides digital content owners with ways to add multi-layered and machine-readable identifiers to their digital assets including ownership, copyright, authenticity, provenance, and more.
   • Market Capitalization: $645M
   • Forward Price-to-Sales Ratio: 18.9 (high)
   • Short Interest: 22.7% (high)
   • Read:
     • Digimarc Launches Industry-First Secure, Automated, Fair, and Efficient Digital Copyright Protection
     • Digimarc Reports Second Quarter 2023 Financial Results
5. BigBear.ai (BBAI): +119.4% YTD
   • BBAI provides AI and machine learning to assist customers in aggregating, interpreting, and synthesizing data to enable real-time decision-making capabilities.
   • Market Capitalization: $229M
   • Forward Price-to-Sales Ratio: 1.4 (excellent)
   • Short Interest: 13.8%
   • Read:
     • BigBear.ai Announces Second Quarter 2023 Financial Results
     • BigBear.ai Receives 6-Month, $8.5M Extension of Phase 2 of U.S. Army Contract 
6. Evolv Technologies (EVLV):: +115.6% YTD
   • EVLV provides AI-based weapons detection for security screening to help make places safer.
   • Market Capitalization: $705M
   • Forward Price-to-Sales Ratio: 9.6
   • Short Interest: 8.3%
   • Read:
     • Evolv Technology Reports Record Second Quarter Financial Results
     • Evolv Technology Releases Newest Enhancement to AI-Based Weapons Detection
7. SoundHound AI (SOUN): +103.0% YTD
   •  SOUN offers voice AI solutions that let businesses offer conversational experiences to their customer in 25 different languages.
   • Market Capitalization: $484M
   • Forward Price-to-Sales Ratio: 10.6
   • Short Interest: 14.0%
   • Read:
     • SoundHound to Deliver Voice AI Experience to New Smart Vehicles
     • SoundHound To Ensure Restaurants Never Miss A Call
     • SoundHound AI Launches Fully Automated AI Smart Answering Service
     • SoundHound AI Reports Second Quarter Results
8. Verses AI (VRSSF): +95.7% YTD
   • VRSSF offers a voice and text-based personal AI assistant designed to learn about its users in order to better organize, manage, and optimize their digital life that operates under a user’s direction and on their behalf, searching, filtering, and summarizing information across multiple data sources.
   • Market Capitalization: $127M
   • Forward Price-to-Sales Ratio: 77.7 (extremely high)
   • Short Interest: None
   • Read:
     • The Next Step In True AI – VERSES AI
     • VERSES AI: Revolutionizing the Future of AI and Distributed Intelligence
     • The BEST A.I. Penny Stock Is VERSES AI
     • VERSES AI compared to Open AI - A Conversation With ChatGPT4
9. Rigetti Computing (RGTI): +91.8% YTD
   • RGTI has developed the industry’s first multi-chip quantum processor for scalable quantum computing systems and serves global enterprise, government, and research clients through its Rigetti Quantum Cloud Services platform.
   • Market Capitalization: $186M
   • Forward Price-to-Sales Ratio: 14.3
   • Short Interest: 5.7%
   • Read:
     • Rigetti Computing Awarded Five-Year Contract with Air Force Research Lab for Quantum Foundry Services
     • Rigetti Computing Reports Second Quarter 2023 Results
10. GSI Technology (GSIT): +38.2% YTD
    • GSIT designs, develops, and markets semiconductor memory solutions and has partnered with the United States Air and Space Force to explore high-performance edge processing using its Gemini® APU, a dual-purpose compute-in-memory chip to unleash the potential of various AI applications, including inference and high-performance computing workloads.
    • Market Capitalization: $60M
    • Forward Price-to-Sales Ratio: 2.2 (excellent)
    • Short Interest: 2.5%
    • Read:
      • GSI Technology, Inc. Reports Fourth Quarter and Fiscal Year 2023 Results
      • GSI Technology Receives $1.25M Award From The Space Development Agency 

The above 10 stocks have an average market capitalization of $343M, an average share price of $2.95 when the outlier DMRC ($32/share), is excluded and are UP 133.9%, on average, YTD.

3 Questions To Ask Yourself

With the above information in hand, ask yourself these 3 questions:

1. Which companies, if any, do you think have the potential of becoming major suppliers to any of the major AI developers?
2. Which companies, if any, are developing or already have in place, AI products/applications that have the potential,  in your opinion, of becoming the next big thing?
3. Which companies, if any, do you believe have AI technology, or technology in development, that makes them a prime acquisition target for one of the major AI tech companies?

Do your own investigation and if you find answers to any of the above questions consider investing in one or more of the stocks reviewed in this article and you could be well-positioned to generate fantastic returns over the next decade.

Performance Comparisons

The 10 constituents in the new  munKNEE  Micro/Small AI Stocks Index are UP 133.9%, on average, YTD compared to:

• the magnificent 7 AI-themed mega-cap stocks which are "only" UP 81.7% YTD;
• the stocks of the top 10 companies developing quantum computing which are "only" UP 67.9%, on average, as of the end of September;
• the top 10 AI chatbot development company stocks which are "only" UP 54.4%, on average, as of the end of September;
• the Global X Artificial Intelligence & Technology ETF (AIQ) consisting of 87 companies
  • developing and utilizing AI technology in their products and services,
  • providing hardware which facilitates the use of artificial intelligence for the analysis of data by big data companies and, collectively, in the information technology, software and services, software, system software, software research and artificial intelligence software sectors
  • The ETF is only UP 39.9% YTD; and
• the iShares Semiconductor ETF (SOXX) consisting of 35 companies operating across information technology, semiconductors and semiconductor equipment sectors. It is only UP 42.3% YTD.

Definitions:

• *The P/S ratio (PSR) describes how much someone must pay to buy one share of a company relative to how much that share generates in revenue for the company. and, as such, determines whether its stock is cheap or overpriced in comparison to its peers. While the ideal ratio depends on the company and industry, the ratio is typically good when the value falls between one (1)  and two (2) and a ratio of less than one (1`) is even better. According to Eqvista (see here), the average ratio for the semiconductor sector is 9.75 and, according to FullRatio (see here), it is 2.18 for information technology services stocks.
• **A short interest as a percentage of float (source):
  • below 10% indicates strong positive sentiment,
  • above 10% is pretty high indicating significant pessimistic sentiment, and
  • above 20% is extremely high indicating that:
    • a high number of shares have been sold short and/or that
    • a low number of shares are available to trade meaning that
    • investors have become more bearish and that if a sudden buying frenzy were to occur, short-sellers would have to frantically cover their positions.

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