Penny stocks can be a good way to pad your portfolio with some riskier assets. However, when selected carefully, as we’ve done with our selection of best AI penny stocks, an investor can reduce their risk and generate solid returns. Most penny stocks, especially those that trade on OTC markets are high risk, but there are also opportunities on larger exchanges.
Before jumping to the list of best AI penny stocks to invest in now, let’s take a look at the latest trends and developments in the AI space.
Latest Developments in AI
Artificial Intelligence appears to be the dominating theme in the past year or so and the stock market is quickly catching on. Many companies are adopting Artificial Intelligence solutions and integrating them into their core business models in order to cut costs, optimize performance and expand both in their existing markets and new niches.
We’re witnessing these trends in tech giants like Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOGL), or NVIDIA Corporation (NASDAQ:NVDA). The latter saw its market cap breach $1.0 trillion mark solely on the back of demand for its chips in AI applications. Currently, NVIDIA Corporation (NASDAQ:NVDA) is marching toward the $3 trillion market cap and is a dominant force in the AI chip market.
In March, the company unveiled the Blackwell platform that includes the GB200 superchip, the most powerful chip that can train AI models using more than a trillion parameters. In large language models (LLM) AI, parameters are features that are used to train the model. For example, Microsoft Corporation (NASDAQ:MSFT)-funded OpenAI employs more than 1.7 trillion parameters for its latest GPT-4 model, which is among the most powerful LLMs.
Therefore, the introduction of Blackwell chips will further solidify NVIDIA Corporation (NASDAQ:NVDA)’s dominant position, as the demand for more power increases.
Microsoft Corporation (NASDAQ:MSFT), besides investing billions into OpenAI, is also investing in its own AI business. In its fiscal third-quarter earnings release, the company reported 17% growth in revenue to $61.86 billion, beating the consensus estimate of $60.88 billion. Among other things, the revenue growth was fueled by 21% growth in the Intelligent Cloud segment, which also includes some of the company’s AI offerings.
“Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry,” Microsoft Corporation (NASDAQ:MSFT) CEO Satya Nadella was quoted as saying in the press release. Copilot is an LLM-based chatbot that can perform tasks similar to ChatGPT.
Alphabet Inc (NASDAQ:GOOGL) also sees its commitment to AI paying off. The company’s latest quarterly results also came higher than expected, with revenue also jumping by 15% on the year to $80.54 billion.
Similar to Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc (NASDAQ:GOOGL) recorded a 28% surge in its Google Cloud segment revenue, which totaled $9.57 billion. In the press release, CEO Sundar Pichai highlighted the solid performance of Search, YouTube and Cloud and mentioned that the company is “well underway with [their] Gemini era.” Gemini is Alphabet Inc (NASDAQ:GOOGL)’s LLM-based AI offering that has been integrated into the company’s core services to enhance them.
So, NVIDIA Corporation (NASDAQ:NVDA), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOGL), as well as a bunch of other tech giants like Meta Platforms, Inc. (NASDAQ:META) and Amazon.com, Inc. (NASDAQ:AMZN) have established themselves as the dominant forces of the AI industry and are likely to maintain these positions for the foreseeable future. Therefore, these companies make solid picks for someone looking to invest in AI stocks. Given their size and history, it’s likely that they will provide investors with stable long-term returns.
However, the AI industry is still taking shape and there are dozens of companies that can provide investors with exposure. One way to assess which stocks could be solid bets is to look at some of the best artificial intelligence stocks to buy now according to Wall Street analysts, as you can identify stocks whose price has the most upside potential.
At the same time, for more risk-tolerant investors, one way to approach the AI industry is by looking at smaller companies and try to identify the best AI penny stocks to invest in now. Even though the risk is higher, the rewards can also be multiples above what NVIDIA Corporation (NASDAQ:NVDA), Alphabet Inc (NASDAQ:GOOGL), or Microsoft Corporation (NASDAQ:MSFT).
It’s also worth noting that the risk can be reduced substantially by doing due diligence when looking to the best penny stocks to invest in. Assessing the financial strength, the growth opportunities, even the management’s experience and expertise, all of these can indicate which AI penny stocks are worthy investments.
Pixabay/Public Domain
Our Methodology
In order to compile the list of best AI penny stocks to invest in now, we sifted through ETFs, stock screeners, and rankings of the best AI stocks. We formed a list of 30 AI stocks that are trading at under $5 per share and then checked our database of hedge funds’ investments based on the latest round of 13F filings. From our initial list, we selected the stocks that were the most widely held by hedge funds. We have only picked stocks that are either developing AI solutions or have committed to integrating AI into their core businesses.
Why are we interested in the stocks that hedge funds pile into? 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).
11 Best AI Penny Stocks to Invest in Now
11. Navitas Semiconductor Corp (NASDAQ:NVTS)
Number of hedge funds positions: 11
In Navitas Semiconductor Corp (NASDAQ:NVTS), there were 11 funds holding $79.91 million worth of stock at the end of March, down by seven funds over the quarter. Navitas is developing Gallium Nitride (GaN) power Integrated Circuits and Silicon Carbide (SiC) technology. These semiconductors are used for powering various devices. In March, Navitas Semiconductor Corp (NASDAQ:NVTS) announced plans to launch server power platform that can be used in data centers and can scale the power output from 3kW to up to 10kW. The company said the new platform comes as a response to increased power demand in data centers, as AI processors require more power.
10. Rimini Street Inc (NASDAQ:RMNI)
Number of hedge funds positions: 13
Rimini Street Inc (NASDAQ:RMNI) provides enterprise software product and services. The company has been involved in Artificial Intelligence before it became mainstream. It operates a proprietary AI platform that includes tools, data, infrastructure, and algorithms that can be used to develop AI applications. In 2021, Rimini Street Inc (NASDAQ:RMNI) patented its proprietary AI-based application called Case Assignment Advisor. The application helps identify and assign the most-suited engineers to work a specific case based on a number of parameters.
Among the 13 funds tracked by Insider Monkey, the top shareholders of Rimini Street Inc (NASDAQ:RMNI) are Jeffrey Diehl’s Adams Street Partners and Ric Dillon’s Diamond Hill Capital, which held 23.57 million shares and 1.96 million shares, respectively, at the end of first quarter.
9. Conduent Inc (NASDAQ:CNDT)
Number of hedge funds positions: 16
With a total of 16 funds from our database holding shares as of the end of 2023, Conduent Inc (NASDAQ:CNDT) is next in the list of best AI penny stocks to invest in now. Conduent came into existence as a spin-off from Xerox Holding Corp (NASDAQ:XRX) and included the latter’s business process services. Conduent Inc (NASDAQ:CNDT) leverages AI to enhance the services it provides for the users. The company’s AI offerings include customer experience management, automated document solutions, healthcare, transportation and government services. More specifically, Conduent Inc (NASDAQ:CNDT)’s customer experience management platform CXNow employs AI for a more personalized experience. The company also operates IntelliHealth Access Platform that improves access to drug therapy for patients. Last but not least, Conduent’s BenePath Enrollment Platform leverages AI solutions to ensure regulatory compliance and streamline access to government benefits.
Among the investors bullish on Conduent Inc (NASDAQ:CNDT), one of the top shareholders is Carl Icahn’s Icahn Capital, which owned 38.15 million shares at the end of 2023. Icahn was directly involved in the creation of Conduent. As an activist investor, Icahn pushed Xerox Holding Corp (NASDAQ:XRX) to explore ways to enhance shareholder value, including separation and divestitures. In 2023, Icahn sold his Xerox Holding Corp (NASDAQ:XRX) shares back to the company, but continues to maintain the position in Conduent Inc (NASDAQ:CNDT).
8. Lantronix Inc (NASDAQ:LTRX)
Number of hedge funds positions: 17
Next in our list of best AI penny stocks to invest in now is Lantronix Inc (NASDAQ:LTRX), which provides enterprise solutions for the Internet of Things. The company operates in several segments, such as transportation, smart cities, government, and healthcare. Lantronix Inc (NASDAQ:LTRX) has also developed solutions that are based on Machine Learning and Artificial Intelligence. At the beginning of February, Lantronix Inc (NASDAQ:LTRX)’s stock took a 31% hit on the back of disappointing financial results. However, for the last quarter, the company posted EPS of $0.11 and revenue of $41.2 million, both of which topped analysts’ expectations and were in line with the company’s outlook. Lantronix Inc (NASDAQ:LTRX) expects for the current quarter to record revenue between $46.5 million and $51.5 million and EPS between $0.12 and $0.18.
There were 17 hedge funds in our database bullish on Lantronix Inc (NASDAQ:LTRX) at the end of March. Among these funds, George McCabe’s Portolan Capital Management holds the largest position, which contains 578,180 shares.
7. Nerdy Inc (NYSE:NRDY)
Number of hedge funds positions: 17
One of the sectors where AI is expected to become a major disruptor is education. Nerdy Inc (NYSE:NRDY) jumped at this opportunity and launched its flagship platform, Varsity Tutors. The platform leverages Artificial Intelligence to enhance the online learning experience for students. Students can access more than 3,000 subjects in different formats, one-on-one, group classes, and self study.
There were 17 funds tracked by Insider Monkey with long positions in Nerdy Inc (NYSE:NRDY) at the end of the first quarter. down by four over the quarter.
6. Olo Inc (NYSE:OLO)
Number of hedge funds positions: 19
The sixth spot in our list of best AI penny stocks to invest in now is represented by Olo Inc (NYSE:OLO), which saw the number of bullish investors from our database decline to 19 from 23 during the first three months of 2024. Among these funds, the top shareholder is Joseph Ravitch and Jeffrey Sine‘s Raine Capital, which own 32.22 million shares, according to their latest 13F filing.
Olo Inc (NYSE:OLO) operates in the hospitality business and it helps customers to place restaurant orders from various sources and provides analytics for restaurants. Moreover, the company is leveraging AI to enhance the experience of both customers and restaurants. Among other things, Olo Inc (NYSE:OLO) uses AI to help restaurants provide a more precise time when an order will be ready. It has also partnered with SoundHound AI to allow customers to place voice orders and restaurants to process them accurately.
5. 8×8 Inc (NASDAQ:EGHT)
Number of hedge funds positions: 20
8×8 Inc (NASDAQ:EGHT) is top a provider of Voice over IP services, including cloud-based services. The stock had a solid run in the pandemic years as remote work increased the demand for online communication. However, it has since declined by more than 92% from the $35-$37 levels seen in 2021 on the back of weak results. To address the issues, 8×8 Inc (NASDAQ:EGHT) has launched a transformation plan. Among other things, 8×8 Inc. (NASDAQ:EGHT)’s strategy includes integrating AI into its core business. The company expects to leverage Artificial Intelligence to enhance customer experience in call centers. In January, 8×8 Inc (NASDAQ:EGHT) said it had embedded AI into its XCaaS (experience communications as a service) cloud-based contact center platform.
A total of 20 funds tracked by Insider Monkey disclosed ownership of 8×8 Inc (NASDAQ:EGHT) stock as of the end of March.
4. Stem Inc (NYSE:STEM)
Number of hedge funds positions: 21
On the fourth spot in the list of best AI penny stocks to invest in now is Stem Inc (NYSE:STEM). Stem Inc (NYSE:STEM) provides clean energy solutions and services that aim to maximize the value of energy assets, such as solar generation and battery storage. The company relies on Artificial Intelligence to optimize and manage more efficiently energy assets, for example, by forecasting electricity demand. In April, Stem Inc. (NYSE:STEM) announced that Gerard Cunningham was appointed to its board of directors. Cunningham has a vast experience in AI, having previously founded and led Winistry, an AI-powered marketing platform, and having been a member of a task force on Generative AI at McKinsey & Company.
During the first quarter of 2024, the number of hedge funds from our database bullish on Stem Inc (NYSE:STEM) remained unchanged at 21. Among these funds, the top shareholder is Alkeon Capital Management, which owns 7.19 million shares.
3. Sabre Corp (NASDAQ:SABR)
Number of hedge funds positions: 23
Sabre Corp (NASDAQ:SABR) was launched in 1960 as a joint initiative by American Airlines Group Inc (NASDAQ:AAL) and IBM (NASDAQ:IBM). The initiative turned into the first company to support online reservations for flights. As years passed, Sabre Corp (NASDAQ:SABR) evolved into one of the leading providers of software and technology for the global travel industry, managing more than $260 billion of global travel spend per year. The company has leveraged Google Cloud machine learning to introduce Sabre Travel AI. The platform aims to help travel businesses attract customers, grow revenue and manage costs.
There were 23 funds that held long positions in Sabre Corp (NASDAQ:SABR) at the end of March, down by three over the quarter.
2. Vimeo Inc (NASDAQ:VMEO)
Number of hedge funds positions: 26
Vimeo Inc (NASDAQ:VMEO) ranks second among best AI penny stocks to invest in now. Vimeo operates a video hosting and sharing platform. Businesses and content creators subscribe to Vimeo and can use the platform and tools provided by it to edit and broadcast video in high-definition format. Recently, Vimeo Inc (NASDAQ:VMEO) has integrated AI into its platform. AI helps users quickly provide text summaries, generate short highlight reels, and provide interactive Q&A that allows viewers to ask questions and get answers.
Steven Baughman‘s Divisar Capital is the largest shareholder of Vimeo Inc (NASDAQ:VMEO) among the investors in our database. Divisar upped its stake by 22% to 7.59 million shares during the first quarter and had previously increased its position in the previous two quarters by 38% and 121%, respectively.
1. Grab Holdings Ltd (NASDAQ:GRAB)
Number of hedge funds positions: 37
Leading our list of best AI penny stocks to invest in now is Grab Holdings Ltd (NASDAQ:GRAB). The Singapore-based multinational technology company is operating a platform that can be used for ride hailing, food delivery and mobile digital payment. Grab Holdings Ltd (NASDAQ:GRAB)’s platform is available in several Asian countries, including Singapore, Malaysia, Cambodia, Thailand. Vietnam, and the Philippines. Grab relies on AI to enhance customer experience. The company also operates GrabMaps platform and to make the maps more precise, Grab Holdings Ltd (NASDAQ:GRAB) relies on small action cameras to collect billions of images. The cameras, called KartaCam, rely on AI to ensure that only the best-quality images are uploaded and used.
Grab Holdings Ltd (NASDAQ:GRAB) saw 37 funds among those tracked by Insider Monkey holding shares as of the end of March, unchanged over the quarter. The top shareholder of Grab Holdings Ltd (NASDAQ:GRAB) is Chase Coleman‘s Tiger Global Management, which owns 66.80 million shares as of the end of March, having raised the position by 31% during the quarter.
If you are looking for an AI stock that is more promising than Micron but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: Michael Burry Is Selling These Stocks and Jim Cramer is Recommending These Stocks.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and investors. Please subscribe to our daily free newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
