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As we wrote on Sept. 23, 

Investing in the artificial intelligence (AI) sector should generate fantastic returns over the next decade but most people are not investing in it the best way. Why? Because they’re focused 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.

Such stocks that trade for less than $10/share will get you wider exposure to that growth with less money invested. The top 10 performers in that sector are up 110% YTD - yes, 110%!

The munKNEE Micro/Small Cap AI Stocks Index

To assist you in determining which, if any, of the micro/small cap AI&R stocks have the greatest prospects of outperforming in the coming months and years we present below our new munKNEE Micro/Small Cap AI Stocks Index consisting of 10 micro/small cap AI&R stocks (average market capitalization of $311M) with

• YTD price changes, ranked in descending order,
• analyst 12-month price forecasts,
• descriptions of their business,
• current price-to-sales ratios (PSRs),
• short interest percentages,
• Altman Z-Scores,
• Piotroski F-Scores, and
• recent news in the media.

1.  Applied Digital Corporation (APLD): up 178.8% YTD; 12-month forecast: up another 177%
   • 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: $545M
   • *Forward Price-to-Sales Ratio: 1.6 (excellent)
   • **Short Interest: 13.0 (high)
   • ***Altman Z-Score: 0.41 (high risk)
   • ****Piotroski Score: 4 (below average)
   • Read:
     • Applied Digital Reports Fiscal Fourth Quarter and Full Year 2023 Financial Results
     • Applied Digital Launches Cloud Service to Empower Artificial Intelligence Applications
2. Rekor Systems (REKR): up 147.5% YTD; 12-month forecast: up another 35%
   • leverages AI, machine learning, and holistic data to support the intelligent infrastructure for smart mobility.
   • Market Capitalization: $205M
   • Forward Price-to-Sales Ratio: 3.7
   • Short Interest: 9.8%
   • Altman Z-Score: -2.8 (extremely high risk)
   • Piotroski Score: 3 (below average)
   • 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
3. Innodata (INOD): up 130.3% YTD; 12-month forecast not available
   • provides 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: $194M
   • Forward Price-to-Sales Ratio: 2.5
   • Short Interest: 12.7% (high)
   • Altman Z-Score: 4.5 (financially sound)
   • Piotroski Score: 3 (below average)
   • Read:
     • Innodata Announces Another New Big Five Tech Custome and Reports Second Quarter 2023 Results
4. Verses AI (VRSSF): up 121.7% YTD; 12-month forecast not available
   • 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: $153M
   • Forward Price-to-Sales Ratio: 81.5 (extremely high)
   • Short Interest: None
   • Altman Z-Score: -4.6 (extremely high risk)
   • Piotroski Score: 2 (extremely low)
   • 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
5. Digimarc (DMRC): up 109.4% YTD; 12-month forecast: down 11.5%
   • 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: $571M
   • Forward Price-to-Sales Ratio: 15.2 (high)
   • Short Interest: 12.6% (high)
   • Altman Z-Score: 12.4 (financially sound)
   • Piotroski Score: 2 (much below average)
   • Read:
     • Digimarc Launches Industry-First Digital Copyright Protection
     • Digimarc Reports Second Quarter 2023 Financial Results
6. BigBear.ai (BBAI): up 95.5% YTD; 12-month forecast: up another 129%
   • BBAI provides AI and machine learning to assist customers in aggregating, interpreting, and synthesizing data to enable real-time decision-making capabilities.
   • Market Capitalization: $204M
   • Forward Price-to-Sales Ratio: 1.2 (excellent)
   • Short Interest: 4.3%
   • Altman Z-Score: -1.9 (high risk)
   • Piotroski Score; 3 (below average)
   • 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 
7. Rigetti Computing (RGTI): up 91.8% YTD; 12-month forecast: up another 102%
   • 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: 13.1 (high)
   • Short Interest: 4.3%
   • Altman Z-Score: -1.1 (high risk)
   • Piotroski Score: 4 (below average)
   • Read:
     • Rigetti Computing Awarded Five-Year Contract with Air Force Research Lab for Quantum Foundry Services
     • Rigetti Computing Reports Second Quarter 2023 Results
8. SoundHound AI (SOUN): up 79.8% YTD; 12-month forecast: up another 166%
   •  SOUN offers voice AI solutions that let businesses offer conversational experiences to their customer in 25 different languages.
   • Market Capitalization: $428M
   • Forward Price-to-Sales Ratio: 7.1 (high)
   • Short Interest: 13.3% (high)
   • Altman Z-Score: -3.8 (high risk)
   • Piotroski Score: 4 (below average)
   • 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. Evolv Technologies (EVLV): up 72.9% YTD; 12-month forecast: up another 99.5%
   • EVLV provides AI-based weapons detection for security screening to help make places safer.
   • Market Capitalization: $565M
   • Forward Price-to-Sales Ratio: 6.9 (high)
   • Short Interest: 4.4%
   • Altman Z-Score: 0.7 (high risk)
   • Piotroski Score: 4 (below average)
   • Read:
     • Evolv Technology Reports Record Second Quarter Financial Results
     • Evolv Technology Releases Newest Enhancement to AI-Based Weapons Detection
10. GSI Technology (GSIT): up 34.1% YTD; 12-month forecast not available
    • 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: $58M
    • Forward Price-to-Sales Ratio: 2.2 (excellent)
    • Short Interest: 1.5%
    • Altman Z-Score: 4.4 (financially sound)
    • Piotroski Score: 2 (much below average)
    • 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 $311M, an average share price of $2.95 (when the outlier DMRC [$28.25/share], is excluded) and are up 108.6%, on average, YTD. Analysts forecast 7 of the above stocks (as noted) going up another 37.4%, on average, within the next 12 months.  

Conclusion

In deciding which, if any, of the above stocks you should invest in, given the above information, also ask yourself these 3 questions:

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

If you find answers to any of the above questions, consider investing in one or more of the stocks covered in this article and you could be well-positioned to generate returns over the next decade.

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) shows the extent of investor sentiment:
  • 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.
• ***The Altman Z-Score estimates a company's risk of bankruptcy: 
  • above 2.9 indicates the company is financially sound.
  • between 1.8 and 2.9 indicates a moderate risk of bankruptcy,
  • below 1.8 indicates the company is likely to go bankruptcy. 

• ****The Piotroski F-Score is a score between zero and nine that reflects nine criteria used to determine the strength of a firm's financial position with nine being the best and zero being the worst.

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