In this article, we will look at the 10 Best Penny Stocks to Buy According to Media.
Penny stocks are those that trade below the price of $5. These stocks represent companies with smaller market capitalization, high risk, and high volatility. Risk-tolerant investors find potential for above-average returns in penny stocks, however, investing in these stocks requires caution and care.
Expected Trends for Small Cap Stocks
On July 17, Chris Retzler, Needham’s small-cap growth portfolio manager, appeared on CNBC where he expressed optimism for the small-cap companies and suggested that we are in a cycle that will prove to be good for many small-cap companies. The Russell 2000 index jumped 3.5% higher on the July 16, hitting the highest levels since January 2022, and was up more than 10% in the previous week. This was one of the biggest rallies investors have seen in the past 4 years.
Retzler believes that small cap stocks have been waiting for a drop in inflation and interest rate cuts. With inflation easing, interest rates are expected to go down as well. He also sees the market broadening, with small companies that have underperformed benefiting from a drop in inflation.
Retzler agrees with Fundstrat’s Tom Lee’s, who sees the Russell 2000 gaining 40% by the end of summer. He believes that the liquidity of small cap companies gives them an edge as it does not take a lot of money to push the stock prices higher, and some expansions by these companies followed by lower interest rates can prove to be good for Russell 2000 companies. We have discussed Tom Lee’s views on how favorable current market conditions are for small-cap companies in 10 Best NASDAQ Penny Stocks To Invest In.
Moreover, Ryan Detrick, who is the Chief Market Strategist at Carson Group also presented his bullish thesis for small and mid-cap companies. He believes that small and mid-cap are going to lead the market in the second half of the year. While addressing the earnings capability of these companies, Detrick said small-cap companies will outperform large-cap companies in 2025 and 2026. As per estimates, S&P 600’s earnings were 4.1% in 2024, whereas S&P 500 earnings were 12.7%. However, moving forward analysts expect S&P 600’s earnings to be at 17.7% in 2025, surpassing estimates of 14.2% for the S&P 500. Detrick believes small-cap stocks now look cheap, economic conditions are favorable, and any interest rate cuts that come along the way will further benefit them.
Now that we’ve discussed what experts think about small caps, let’s now look at the 10 best penny stocks to buy according to financial media.
Our Methodology
To compile our list of the best penny stocks to buy according to media, we aggregated 50 plus penny stocks from financial media websites on the internet. We then selected the top 10 penny stocks that were the most widely held by hedge funds, as of Q1 2024. The list is in ascending order of the number of hedge funds holders in each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Penny Stocks To Buy According to the Media
10. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF)
Number of Hedge Fund Holders: 16
Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) started as a pet product retail business in 1965 and went public in 2021, taking encouragement from the increase in pet ownership during the pandemic. Today, the company operates as a one-stop shop for pets and pet owners offering them veterinary care, grooming, training, telehealth, pet products including food, treats, and toys, and pet health insurance services. The company also operates a mobile clinic called Vetco, that brings veterinary services directly to communities. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) provides its services through 1,423 pet care centers in the US and Puerto Rico, 131 pet centers in Mexico through joint venture arrangements, and several websites where customers can shop for products online.
The ability of the company to house veterinary clinics and grooming services in stores to become a one-stop shop for pet owners gives Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) a competitive edge over its e-commerce platform competitors. Additionally, its pet food brands including WholeHearted and Reddy, which provide specialized pet products, allow the company to capitalize on the growing pet care market. According to Mordor Intelligence, the US pet care and services market was valued at $12.21 billion in 2024 and is expected to grow at a CAGR of 3.51% to reach $14.51 billion by 2029.
Although the company is not profitable at the moment and reported a revenue of $1.5 billion in Q1 2024, a 2% decrease year over year, the company reported a loss per share of 4 cents, beating analysts’ expectations by 2 cents. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) has beat earnings estimates for 5 out of the past 8 quarters and management believes they will be generating positive free cash flow during fiscal 2024. Moreover, if we were to look at the company’s annual report for 2023, its revenue increased 3.6% and the comparable sales increased 1.8% year over year, indicating its ability to capitalize on the growing pet care and services market of the US.
The company is also prioritizing strategic partnerships to increase its reach and market share of pet goods and services. In August 2023, the company expanded its partnership with DoorDash to make Petco’s products available nationally through the DoorDash marketplace. In addition, Petco has also upgraded its website with features such as streamlined pet profiles for all wellness needs for your pet. The new feature helps customers stay up to date for their pet’s needs including vaccinations, grooming appointments and much more.
WOOF is one of the best penny stocks to buy according to media. Not only does the company operate in a growing industry which is expected to reach $ 14 billion by 2029, but it also has a competitive edge of being a one-stop-shop for pet owners. Management is positive about its cost-cutting transformation and believes that it is on track to unlock $150 million in cost savings by 2025. The company was also able to reduce its capital expenditures by 47% year over year during the first quarter and are on track to achieve positive free cash flow during the current year. The stock was held by 16 hedge funds in Q1 2024, with total stakes worth $39.795 million.
9. SmartRent, Inc (NYSE:SMRT)
Number of Hedge Fund Holders: 17
SmartRent, Inc. (NYSE:SMRT) is a real estate technology company that specializes in the development of home automation through hardware and cloud-based software solutions. The technology solutions designed by the company provide a single point of control for all devices within a property. For instance, land and business owners can control thermostats, doorbells, security cameras, Wi-Fi and other installed devices on their property through a single interface. The package provided by the company includes training, installation and post-installation support services.
SmartRent, Inc (NYSE:SMRT) is one of hedge funds’ favorite penny stocks as it was held by 17 hedge funds in Q1 2024 with total stakes amounting to $91.528 million. What sets SmartRent apart from its competitors is its focus on the integrated, brand-agnostic approach to automation technologies, meaning that the hardware and SaaS solutions provided by SmartRent are designed to work seamlessly with a range of third-party smart devices rather than relying solely on proprietary devices. This flexibility allows the company to increase its market share in terms of the customers it serves. Moreover, its SaaS segment has also shown remarkable growth in the first quarter, growing 32% year over year on the back of more deployed units and cross-selling.
The financial situation of the company has also improved considerably as of the first quarter of 2024. The company’s revenue grew by 13.66% year over year to reach $50.5 million in the first quarter. Growth in the revenue was mainly attributed to its strong recurring revenue from SaaS products, which contributed $12 million to the revenue during the same time. The company also posted a positive adjusted EBITDA for the second consecutive quarter, amounting to almost $400,000 and surpassing the company’s guidance. Moreover, the full-year guidance remains unchanged at $260 million to $290 million in revenue.
Should you invest in SMRT? Here’s the conclusion:
For risk-tolerant investors, SMRT can be a good stock to invest in given its potential for growth and its improving financials. Management not only expects to reach profitability during 2024, but it has also been expanding its SaaS operations strategically. The company deployed around 750,000 units during the first quarter, a 24% year-over-year increase. With $205 million in cash and cash equivalents as of Q1 2024, SmartRent, Inc (NYSE:SMRT) has room for growth in the future.
8. NIO, Inc. (NYSE:NIO)
Number of Hedge Fund Holders: 19
NIO, Inc. (NYSE:NIO) is a leading automotive company that focuses on designing, manufacturing, and selling smart electric vehicles in China. The company’s vehicle line-up is not only restricted to sedans but also includes 5 and 6-seater SUVs. In addition to designing and selling smart electric vehicles, NIO, Inc (NYSE:NIO) also provides home, mobile, and public charging facilities, maintenance and repair, insurance, and used vehicle services.
What sets NIO, Inc. apart from its competitors is the company’s ability to address the major pain points of electric vehicle customers i.e. battery maintenance and swapping services. Through its NIO Power operations, the company offers a 3-minute battery swap for a fully charged battery without even the need for the driver to get out of the car. The company has been expanding its battery-swapping operations through several strategic partnerships. NIO, Inc. has partnered with Chinese automakers including Changan, Geely, Cherry, and JAC to develop and expand its battery swap network in China. As a result of these partnerships, the company has installed more than 2,300 swapping stations across the country. Although only a small proportion of these stations are breaking even currently, management believes that this investment is at least 2 years ahead of market demand and will reap benefits once demand starts to pick up.
The company’s May 2024 deliveries went up by 233.8% year-over-year, consisting of 12,164 premium smart electric SUVs and 8,380 premium smart electric sedans. However, revenue fell 7.2% year over year during the first quarter of 2024, mainly due to lower average selling prices and a seasonal decrease in delivery volumes. On the bright side, the other sales segment of the business which includes sales of parts, after-sale service and professional power stations was up by 5.2% year over year to RMB 1.5 billion ($206.2 million), indicating a strong customer base.
Should you invest in NIO, Inc. (NYSE:NIO)? Here’s the takeaway: Not only is the company expanding its competitive edge of battery swapping facilities through strategic partnerships but it has increased its deliveries substantially over the past year. The company also quoted improved vehicle margins of 9.2%, up from 5.1% during the first quarter of 2023. NIO, Inc. (NYSE:NIO) has potential to run, analysts’ 1-year average price target points to a 39% upside from current levels.
The stock was held by 19 hedge funds during Q1 2024 with total stakes worth $79.322 million.
7. AXT, Inc. (NASDAQ:AXTI)
Number of Hedge Fund Holders: 19
AXT, Inc. (NASDAQ:AXTI) is a leading technology company that specializes in producing backend materials used in manufacturing semiconductor devices. The company designs and creates substrate materials for many high-demand electronic components including indium phosphide, gallium arsenide, and germanium substrates. These substrates are used in chip making which are then used to print circuits in the final products. The substrates manufactured by AXT, Inc. are used for improving internet speed, increasing connectivity in data centers, and enabling 5G communications, among many other use cases. In simpler terms, the company manufactures raw materials for modern-day technology and gadgets.
In Q1 2024, AXT, Inc.’s (NASDAQ:AXTI) grew by 17% year over year on the back of strong performance across the board. The Indium phosphide revenue increased to $8.1 million during the quarter driven by a 50% increase in sales from AI and data center-related demand. The company has also been able to improve its gross margins from 26.3% in the first quarter of last year to 27.3% during the current year. Management sees higher production volumes and benefits from its recycling program driving margin improvement and expects to get back to the mid-30% range.
The ability of AXT, Inc. to generate revenue from its global operations, which comprises 79% from Asia Pacific, 16% from Europe, and 5% from North America gives the company a competitive edge over its competitors. The stock was held by 19 hedge funds during the first quarter of 2024, up from 13 hedge funds in the previous quarter, with total stakes worth $24.513 million.
Should you invest in the AXTI?
AXT, Inc. (NASDAQ:AXTI) plays an integral role in the AI and semiconductors markets, both of which are forecasted to grow meaningfully in the future. As long as management remains focused on operational efficiencies and a return to profitability, the company will thrive with the growth of its end markets. Wall Street is also bullish on AXTI. Five analysts hold a Strong Buy rating on the stock and their 1-year median price target of $5.50 implies an upside of 64.18% from current levels.
6. Arcadium Lithium plc (NYSE:ALTM)
Number of Hedge Fund Holders: 21
Arcadium Lithium plc (NYSE:ALTM) is a leading global lithium-producing company that was formed after the merger of Allekm and Livent, two major lithium-producing companies, in 2023. The company is involved in the extraction of lithium via hard-rock mining, brine extraction, and Direct Lithium Extraction (DLE). The company also produces battery-grade lithium hydroxide, lithium carbonate and other specialty lithium products, which have essential applications in electric vehicles, primary batteries, greases, pharmaceuticals, polymers, and aerospace.
Arcadium Lithium plc (NYSE:ALTM) posted a successful first quarter achieving $261 million in revenue and $109 million in adjusted EBITDA, reflecting strong performance despite production challenges. The company is also on track to improve its cost savings. Management expects cost savings of $60 to $80 million in 2024, mainly through a reduction in workforce and operating expenses. What truly sets Arcadium Lithium plc apart from its competitors is its robust portfolio of lithium products emerging from the merger of two established lithium players.
Arcadium Lithium plc (NYSE:ALTM) is on track to capitalize on the increase in demand for lithium arising from electric vehicles. Global sales of EVs were up by 20% during the first quarter, moreover, as per the IEA’s figures, the number of EVs sold in the first quarter of 2024 alone was equal to the total number of EVs sold in 2020. With almost three-quarters of Arcadium Lithium plc’s (NYSE:ALTM) total revenue coming from its lithium hydroxide and lithium carbonate businesses, the global nature of its operations puts it in a sweet spot to capitalize on the growing demand for lithium products. ALTM is an investors’ favorite and was held by 21 hedge funds in Q1 2024, with total stakes worth $66.786 million. Analysts are also bullish on the stock and see a 50% upside from current levels.
5. Sabre Corporation (NASDAQ:SABR)
Number of Hedge Fund Holders: 23
Sabre Corporation is one of the three major global travel distribution companies, which connect travel agencies and users to various hotels, flights, rental car options and other travel-related facilities. The company operates through two main segments: Travel Solutions and Hospitality Solutions. The travel solutions segment offers a B2B travel marketplace that brings together airlines, hotels, and travel agencies to make it easier for people to book and plan their travel. The segment also provides a portfolio of Software as a Service (SaaS) and other software technologies to airlines and travel suppliers to effectively manage reservation systems, commercial operations, and agency and data intelligence solutions. The Hospitality Solutions segment provides software and technology solutions to hotels and hotel chain managers so they can better serve their guests thereby making the overall hotel booking experience easier for travelers.
SABR is one of the best penny stocks to buy now and we say this because it was held by 23 hedge funds at the close of the first quarter of 2024 with stakes worth $126.147 million. The company posted a Q1 this year, with revenue increasing 5% year over year to $784 million and adjusted EBITDA increasing by 145% to $142 million. The growth in revenue and the adjusted EBITDA was mainly due to management’s adherence to its growth strategies which drove higher average booking fees, cost structure improvements, and a strong gain in air share and hotel distribution. Sabre Corporation (NASDAQ:SABR) increased its air distribution industry share by 0.6 pts year over year and grew its total distribution bookings by 2% during the same period to 98 million.
Should you invest in SABR? Here’s the conclusion: In addition to the strong performance of Sabre Corporation (NASDAQ:SABR) concerning its strategic priorities to cut cost base and achieve technological transformation, the company has been able to land successful strategic partnerships. The company has signed key deals with Etraveli Group and W2M to expand its platform with 20 new airline partners. Moreover, within the Airline IT segment, the company has secured recent agreements with Aegean Airlines and Air Serbia. These companies will adopt Sabre’s SabreSonic software platform to better manage their inventory and network. With these strategic partnerships, overall cost-cutting focused management, and technological transformation, Sabre Corporation is set to capitalize on the rebound in global traveling. On the Street, five Wall Street analysts hold a Buy opinion on SABR.
4. Tetra Technologies, Inc. (NYSE:TTI)
Number of Hedge Fund Holders: 23
Tetra Technologies Inc. (NYSE:TTI) is an energy services company that helps oil and gas companies with the fluids and water management needed for drilling and maintaining oil and gas wells. The company operates through two main business segments, the Completion Fluids & Products Division and the Water & Flowback Services Division.
Tetra Technologies Inc. (NYSE:TTI) manufactures and sells clear brine fluids, additives, and other related products and services to oil and gas well drilling companies under its Completion Fluids & Products Division. They also produce liquid and dry calcium chloride and ultra-pure zinc bromide under the same segment and market it to battery technology companies in the United States and internationally. On the other hand, the Water & Flowback Services Division segment offers water management services including frac flow back, production well testing, and other related services to onshore oil and gas operations.
What makes Tetra Technologies Inc. unique is its ability to capitalize on offshore and deepwater activities. The company’s adjusted EBITDA grew by 11% year over year to $22.8 million in Q1 2024, mainly driven by strong Completion Fluids & Products adjusted EBITDA margins of 28.1% and 15 offshore deepwater operations that the company serviced during the quarter. The company has also been working in the TETRA CS Neptune family of novel completion fluids, which is an environment friendly and cost-effective alternative to zinc brines. The demand for high-value bromine-based Completion Fluids that include TETRA CS Neptune has increased globally. Therefore, the company has made strategic investments in the Gulf of Mexico, Brazil, and the North Sea, which will grow the company’s CS Neptune pipeline further. In addition, the company’s TETRA PureFlow ultra-pure zinc bromide, which is used for stationary battery and energy storage applications, gives Tetra Technologies Inc. a competitive edge in the global transition towards renewable energy and presents an opportunity for revenue diversification.
Is TTI presenting an attractive entry point? The stock is currently trading at 13 times its forward earnings estimates, a 65.54% discount to its 5-year average. Moreover, analysts expect the company to grow its EPS by 11.5% this year. On the Street, 6 analysts hold a Buy opinion on TTI and their 1-year median price target of $7.50 implies an upside of 99.47% from current levels.
3. Talkspace, Inc. (NYSE:TALK)
Number of Hedge Fund Holders: 27
Talkspace Inc. (NYSE:TALK) is a behavioral healthcare company that provides affordable and accessible mental healthcare services through its online platform across the United States. The company connects psychiatrists and psychologists with individuals and enterprises, through text, audio, and video-based psychotherapy.
Talkspace, Inc. operates through three segments, namely the payer segment, DTE (Direct to Enterprise) segment, and the individual subscriber (consumer) segment. Within the payer segment, the company partners with major US health insurance providers such as Aetna, Cigna, and Optum to provide services to insured members of these insurance plans. Under the DTE segment, the company contracts directly with organizations such as enterprises, education organizations, and government entities to provide online mental health services to members of these organizations. Some of the major clients in the DTE segment include Google, the University of Kentucky, and the New York City Department of Health and Mental Hygiene. Lastly, the consumer segment of the company includes individual subscribers from various socioeconomic backgrounds, genders, and races, who pay out-of-pocket to get mental health services.
Talkspace Inc. (NYSE:TALK) was held by 27 hedge funds at the end of Q1 2024, up from 19 hedge funds during the previous quarter, with stakes worth of $106.06 million. The company posted a successful first quarter this year, with revenue increasing 36% year over year to $45.4 million. Revenue growth was mainly driven by a 92% increase in the payer category and a 14% increase in DTE revenue. The company reported an adjusted EBITDA of $0.8 million, making Q1 2024, the first quarter of adjusted EBITDA profitability in the 13-year history of Talkspace Inc. (NYSE:TALK).
Talkspace is capitalizing on the growing need for affordable mental health services through its strategic partnerships and is expanding its provider network. The company has launched its health collective marketplace, a growing suite of whole health digital providers and services, and has already partnered with healthcare providers and wearable technology companies including Aura, Evernow, Conceive and Fit On.
While strategic partnerships are lucrative, what’s more noteworthy is the company’s effort to jump into new verticals. With substantial growth in the payer segment, the company is now aiming to expand its covered lives thereby increasing its capture rate and utilization. Talkspace Inc. expects to expand its network with Medicare, a segment with an opportunity of more than 65 million lives. The company will go live in multiple states within the next few months adding more than 10 million lives to its coverage at launch and will further expand its network to all 50 states later this year.
Is Talkspace Inc. (NYSE:TALK) a good investment, given that its consumer segment took a hit?
Yes, the consumer segment revenue of the company took a hit and the revenue declined by 29% year over year during the quarter. However, it was all in line with the company’s strategic focus of increasing its covered lives. It is important to elaborate on what the covered lives mean for the company. For Talkspace, “covered lives” means individuals who are eligible to receive mental health services through their insurance plans, i.e. Employee Assistance Programs (EAPs), or other benefit programs. So, the decrease in consumer revenue stemmed from the increase in lives covered during the previous quarter making more members qualify for the coverage, thus reducing the need for them to pay out of pocket.
For risk-tolerant investors, Talkspace Inc. presents an attractive opportunity. The company has vast coverage with over 131 million Americans having access to its services The company’s full-year guidance is promising, with revenue expected to be between $185 million and $195 million and adjusted EBITDA projected between $4 million and $8 million. Analysts hold a consensus Buy opinion on the stock and their 1-year median price target of $4 represents an upside of 74% from current levels.
2. Compass, Inc. (NYSE:COMP)
Number of Hedge Fund Holders: 29
Compass, Inc. (NYSE:COMP) is a real estate technology company that employs real estate agents and provides them with an end-to-end platform to deliver exceptional client management. The success of Compass, Inc. (NYSE:COMP) is directly tied to the success of its agents. The company generates most of its revenue from the commissions paid by real estate agents every time a property is transacted through its platform.
The platform provided by the company is not only backed by proprietary data and analytics, but uses machine learning and AI to simplify the workflow for agents. Agents can use the integrated cloud-based suite to manage customer relationships, client service, marketing, brokerage service, and other functionalities all using the tailor-built platform for the real estate sector.
The platform continues to attract real estate agents and increased its principal agent count by 7.3% year over year in the first quarter, despite the headwinds from rising interest rates and declining real estate transactions in the market. Compass, Inc. (NYSE:COMP) is an investors’ favourite as it was held by 29 hedge funds in Q1 2024 with stakes worth over $188 million.
In Q1 2024, Compass, Inc. (NYSE:COMP) grew its revenue by 10% year-on-year to $1.05 billion. The increase in revenue was mainly on the back of increasing real-estate transactions during the quarter. The company processed 38,449 transactions during Q1, up 7.1% year over year. The company has also raised its next quarter revenue guidance and said it expects revenue to grow to between $1.6 billion to $1.7 billion, while analysts’ expectations sit at $1.5 billion. This rise in expectation stems from its agents outperforming the market in terms of closing deals. Moreover, management has remained focused on reducing costs through incorporating technology and reduced its operating expenses by $32 million year-over-year during the first quarter and brought them down to $211 million.
Is COMP too risky to invest in? Here’s the conclusion:
Compass, Inc. (NYSE:COMP) might be a risky investment due to the current real estate slowdown and the lack of supply of affordable houses in the US. However, the company has grown its annual transactions by 7.1% year-over-year in Q1, while the overall market saw a 3.5% decline. Moreover, the company has grown its market share as well. In Q1 the company grew its quarterly market share by 26 base points year-over-year. The company is also expanding its presence into new regions. On April 3, Compass, Inc. announced its expansion to New Orleans and the Louisiana and Mississippi market by strategically acquiring Latter & Blum, a renowned real estate advisor in the South. This strategic acquisition will not only enable the company to expand its market share further but has the potential to bring more revenue as now Latter & Blum’s agents would have access to Compass, Inc’s platform.
Stated that the company’s agents have been successfully closing real-estate transactions despite the slowdown in the market, the year over year increase of 33% in the company’s inventory presents an attractive front for future growth. Moreover, Compass, Inc. is leveraging AI in its platform by providing its agents with smart real-estate valuation analysis, AI-driven content for property listings and marketing, and much more. Its AI-Driven Client Prospecting Recommendations System automatically recommends relevant clients in an agent’s contact database, thereby increasing the chances of a successful transaction. Over the past 3 months, 3 Wall Street analysts have given a Buy rating on the stock and the average price target of $9.09 represents an upside of 185% from current levels.
1. Grab Holdings Limited (NASDAQ:GRAB)
Number of Hedge Fund Holders: 37
Grab Holdings Limited (NASDAQ:GRAB), also known as the Uber of Southeast Asia, operates a super-app which provides delivery, mobility, and financial services in the region. People use the company’s app to request cabs, order food, and make online payments. This penny stock is an investors’ favourite and we say that because it was held by 37 hedge funds at the close of Q1 2024 with stakes worth nearly $613 million.
In Q1 2024, Grab (NASDAQ:GRAB) reported an all-time-high adjusted EBITDA of $62 million and raised its adjusted EBITDA guidance for the full year to a range between $250 million and $270 million (prior range: $180-$200 million). Revenue grew by 24% year over year to $635 million, driven by strong performance across the board. While these numbers are decent, what’s more important is that the company grew its monthly transacting users to 38 million during the quarter, up from 33 million a year ago.
Why are users growing you might ask and the reason is simple: Grab’s (NASDAQ:GRAB) app is getting better due to the company’s approach to using AI. The company’s AI engines are trained with its local markets in mind, on a Southeast Asia-specific dataset. This is why when a Malaysian consumer enters “mekdi” in Grab’s search bar, the term gets matched to “McDonald’s”, and similarly other local dialects are interpreted by its AI and matched to the corresponding intended terms.
The company is committed to improving its app using AI and spent $250 million collectively on AI development between 2019 and 2020. In May, Grab (NASDAQ:GRAB) entered a partnership with OpenAI to build and deploy models that will enrich user experience via AI-powered customer support chatbots, improve navigation on maps, and improve accessibility for visually impaired and elderly individuals.
GRAB is a risky investment, no doubt about that, but for risk-tolerant growth investors here’s the takeaway:
Grab (NASDAQ:GRAB) has a near-monopoly position in Southeast Asia when it comes to ride-hailing and delivery services. It acquired Uber’s Southeast Asian operations back in 2018 and also made a bid for Singapore’s third-largest taxi operator, Trans-cab, back in 2023. Although the deal is under regulatory review, if it goes through, it will strengthen Grab’s (NASDAQ:GRAB) market position.
Moreover, a steady growth in users on its app, driven by a better and more personalized experience for them, can potentially translate into higher earnings. While it is unprofitable right now, you need to see that there are over 675 million people in Southeast Asia and Grab (NASDAQ:GRAB) has only captured about 6% of its total addressable market. So, there is potential here and the stock has room to run. The company ended the quarter with $2.1 billion in cash and only lost $294 million over the past twelve months.
Grab (NASDAQ:GRAB) can use its cash reserves to facilitate growth over the next several quarters and potentially deliver strong returns. Analysts hold a consensus Buy opinion on the stock and their 1-year median price target points to a 32% upside from current levels.
While we acknowledge the potential of Grab Holdings Limited (NASDAQ:GRAB) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
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