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Investing in the artificial intelligence (AI) sector should generate fantastic returns over the next decade but most investors focus on the mega/large cap AI & related (AI&R) stocks that often 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) flying under the radar that warrant your attention.

Most micro/small cap AI&R stocks trade for less than $10/share and, as such, are a fraction of the cost of investing in the popular mega/large cap AI&R stocks (think Tesla @ +$250/share, Meta Platforms @ +$300/share, Nvidia @ +$450/share, Adobe @ +$550/share, Lam Research @ +$650/share, and Broadcom @ +$850/share).

AI&R is going to play a major role in the future of technology, and investing in less expensive micro/small cap AI&R stocks is the best way to get wider exposure to that growth with less money invested. For example, a $500 investment might only buy you as few as 1 or 2 shares of a recognizable blue-chip mega/ large cap AI&R stock or it could buy you 50+ shares of a stock priced at below $10 or of several stocks trading at that price level. If one, or more such companies were to grow and become a mid-cap stock, for example, you would see a lot more profit than you would have by investing in a larger, more popular AI&R stock.

munKNEE  Micro/Small AI Stocks Index

As to which stocks have the greatest prospects of doing well in the coming months and years 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 $354M) with a description of their businesses and current price-to-sales ratios (PSRs), short interest percentages, price changes ranked as of the end of September (i.e., YTD) and recent news in the media.

1.  Applied Digital Corporation (APLD): +239.1% YTD
   • a designer, builder, and operator of next-generation digital infrastructure that is designed for High-Performance Computing applications.
   • it 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.
     • It signed its first major AI customer agreement later in May worth up to $180 million over a 24-month period,
     • signed its second  agreement in June worth up to $460 million over 36-months,
     • signed 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 and,
     • in August, it achieved “Elite Partner” status in the NVIDIA Partner Network.
   • Market Capitalization: $623M
   • *Forward Price-to-Sales Ratio: 1.8
   • **Short Interest: 22.1
   • Read:
     • Applied Digital Reports Fiscal Fourth Quarter and Full Year 2023 Financial Results
     • Applied Digital Launches Cloud Service to Empower Artificial Intelligence Applications
2. Innodata (INOD): +187.2% YTD
   • ts Digital Data Solutions segment 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
3. Digimarc (DMRC): +140.8% YTD
   • provides digital content owners with an affordable and self-serve way to add a multi-layered and machine-readable identifier to digital assets. This identifier can communicate other essential digital asset attributes in addition to ownership and copyright, including authenticity, provenance, and more.
   • Market Capitalization: $656M
   • Forward Price-to-Sales Ratio: 19.2
   • Short Interest: 22.7%
   • Read:
     • Digimarc Launches Industry-First Secure, Automated, Fair, and Efficient Digital Copyright Protection
     • Digimarc Reports Second Quarter 2023 Financial Results
4. Rekor Systems (REKR): +135.0% YTD
   • leverages AI, machine learning, and holistic data to support the intelligent infrastructure for smart mobility.
   • Market Capitalization: $195M
   • Forward Price-to-Sales Ratio: 4.7
   • 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
5. BigBear.ai (BBAI): +125.4% YTD
   • provides AI and machine learning to assist customers in aggregating, interpreting, and synthesizing data to enable real-time decision-making capabilities.
   • Market Capitalization: $235M
   • Forward Price-to-Sales Ratio: 1.4
   • Short Interest: 18.8%
   • 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):: +122.9% YTD
   • provides AI-based weapons detection for security screening at theme parks, stadiums, arenas, schools, hospitals, warehouses and performing arts venues to help make places safer.
   • Market Capitalization: $729M
   • Forward Price-to-Sales Ratio: 9.9
   • Short Interest: 8.3%
   • Read:
     • Evolv Technology Reports Record Second Quarter Financial Results
     • Evolv Technology Releases Newest Enhancement to AI-Based Weapons Detection
7. Verses AI (VRSSF): + 117.4% YTD
   • 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: $141M
   • Forward Price-to-Sales Ratio: 78.6
   • 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
8. SoundHound AI (SOUN): +107.2% YTD
   •  offers voice AI solutions that let businesses offer conversational experiences to their customer in 25 different languages. For example, its technology allows vehicle drivers to place commands to play music, lock doors, open the trunk, change the temperature, switch lights, and access information about local charging stations and battery range, etc. by speaking naturally – just as they would to another person.
   • 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
9. Rigetti Computing (RGTI): +82.2%
   • 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: $177M
   • Forward Price-to-Sales Ratio: 13.6
   • 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): +56.6% YTD
    • designs, develops, and markets semiconductor memory solutions to networking, industrial, medical, aerospace, and military customers and is the developer of the Gemini^® Associative Processing Unit for AI and high-performance parallel computing.
    • 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: $68M
    • Forward Price-to-Sales Ratio: 2.5
    • 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 

3 Questions To Ask Yourself

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

1. Which companies, if any, have the potential of becoming major suppliers to any of the major AI developers?
2. Which companies, if any, are developing or already have, AI products/applications in place that have the potential to become the next big thing?
3. Which companies, if any, 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 142.0%, on average, YTD compared to:

• the stocks of the top 10 companies developing quantum computing which are "only" UP 67.9%, on average, YTD, 
• the top 10 AI chatbot development company stocks which are "only" UP 54.4%, on average, YTD, and
• the Global X Artificial Intelligence & Technology ETF (AIQ) of 87 sector stocks which is only UP 37.4% 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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