In this article, we will take a detailed look at 12 Best AI Penny Stocks to Buy According to Hedge Funds.
AI penny stocks are typically small-cap companies that focus on artificial intelligence technologies, such as machine learning, automation, and data analytics. These stocks, typically trading under $5.00 per share, belong to emerging tech firms that develop AI-powered software, robotics, or cloud-based AI solutions. Investors are drawn to AI penny stocks due to their high growth potential, as advancements in AI continue to disrupt and/or complement industries like healthcare, finance and cybersecurity. However, these stocks also come with significant risks, including volatility, low liquidity, lack of financial stability, and the potential for the share price to go to zero. These risks are even more pronounced in the context of the Chinese startup called “DeepSeek” potentially disrupting the AI inferencing market, meaning that some of the AI software and applications developed by penny stocks could eventually become commoditized and thus impossible to profitably monetize.
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Hedge funds have been quite active in the AI space, as the most widely owned companies by hedge funds are large cap technology stocks with strong exposure to the AI megatrend. However, as hedge funds are striving to maximize their potential alpha, they are also actively seeking investments in the less followed small cap space and especially penny stocks. Hedge funds are also very keen to react to major market shifts and thus provide insights into potential major risks. Here is what Horizon Kinetics commented about the DeepSeek development during their Q4 2024 letter published in January 2024:
“How terrible are the implications for spending growth of the AI hyperscaler companies now that AI models can be developed for $6 million instead of a gazillion dollars? If that order-of-magnitude performance/cost breakthrough is true, that might be an even greater boon to AI spending. The use cases for AI are so deep, wide and all-pervading in the true economic productivity sense, that the pace of adoption and the volume load upon data storage, retrieval and processing might even accelerate. The build-it-and-they-will-come phenomenon.”
It is certain that some hedge funds view the recent developments as favorable and potentially fueling more research and progress from AI developers, many of which are penny stocks. If training and inferencing of leading AI models become exponentially cheaper, this per se means exponentially lower barriers to entry for startups and much lower budget requirements for the budget-tight small cap stocks. This shift could lead to a surge in innovation, allowing smaller AI firms to compete with established players by developing cutting-edge models at a fraction of the previous cost. Additionally, reduced computational expenses may attract more venture capital and institutional interest, further accelerating the growth of AI-focused penny stocks. The key takeaway for investors is that, while the 2023-2024 market gains were fueled by large caps, it may be finally that moment when mid and small caps, including penny stocks, follow through, by leveraging the growing GPU infrastructure base at big tech hyperscalers as well as the Chinese technology contribution. If that is the case, then observing where smart money (hedge funds) is flowing may offer unique insights into the best AI penny stocks to buy. Given this, we will take a look at some of the best penny stocks according to hedge funds.
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Our Methodology
To compile our list of AI penny stocks, we used Finviz to filter the technology companies with a share price of less than $5.00, as of March 14. We then individually identified companies that have significant revenue exposure to AI products or services. Finally, we compare the list with our proprietary database of hedge fund ownership as of Q4 2024 and include in the article the top 12 stocks with the highest number of hedge funds that own the stock.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
12. Veritone, Inc. (NASADQ:VERI)
Number of Hedge Fund Holders: 5
Veritone, Inc. (NASDAQ:VERI) is an American technology company specializing in AI solutions across various industries, including media, entertainment, government, public safety, and energy. Its proprietary operating system, aiWARE, is utilized by over 2,000 customers, such as police agencies, district attorney offices, media conglomerates, radio and TV stations, and movie studios. In the media sector, products like Veritone Attribute and Discovery assist broadcasters in verifying and measuring ad efficacy by correlating airtime with advertiser website activity. For government and public safety, Veritone Redact software enables the redaction of sensitive information from video or photographic evidence. The company’s AI-powered solutions also extend to energy, offering tools to predict optimal energy supply mixes and pricing to meet grid demand.
Veritone, Inc. (NASDAQ:VERI) has executed a transformative divestiture of its Media Agency business, in a transaction valued at up to $104 million, positioning itself as a pure-play AI enterprise software firm. The divestiture has significantly strengthened the company’s financial foundation, reduced debt servicing burden, and eliminated customer concentration risk with no single customer now accounting for more than 5% of revenues. The company’s aiWARE platform serves as an operating system for AI, supporting dynamic and scalable cognitive architectures and workflows, currently serving hundreds of enterprise customers globally. In the commercial sector, VERI has secured significant partnerships, while also being in the final stages of securing a material media customer deal worth over $20 million in potential total contract value. The Public Sector vertical shows strong growth potential with a pipeline exceeding $110 million, and the company has added 13 new Public Sector customers in the quarter.
Looking ahead, Veritone, Inc. (NASDAQ:VERI) expects fiscal 2025 revenue to be between $107 million to $122 million, representing a 22% increase YoY at the midpoint, with Public Sector growth projected between 100% to 150% YoY. The company has executed over $40 million of annualized cost savings since the beginning of 2023, including over $17 million of annualized cost reductions in fiscal 2024, positioning it well for future growth and profitability as early as fiscal 2026. With strong guidance ahead and a stock price below $5.00, VERI is one of the best AI penny stocks to buy according to hedge funds.
11. Rekor Systems, Inc. (NASDAQ:REKR)
Number of Hedge Fund Holders: 5
Rekor Systems, Inc. (NASDAQ:REKR) is a technology company specializing in AI-driven roadway intelligence and traffic management solutions. By integrating AI, computer vision, and machine learning, REKR transforms video and sensor data into actionable insights, enhancing traffic safety and urban mobility. Its flagship platform, Rekor One™, serves as the foundation for products like Rekor Discover™, which provides real-time traffic data analytics, and Rekor Command™, designed for transportation management. These solutions are utilized by government agencies for traffic operations and incident detection, as well as by commercial entities for applications such as parking enforcement and urban planning.
Rekor Systems, Inc. (NASDAQ:REKR) reported Q3 2024 revenues of $10.5 million, representing a 16% increase YoY. The company achieved significant milestones including inclusion on Florida’s Approved Product List (APL) and has begun the first wave of statewide deployments through Florida DOT’s Central Office. The company’s systems proved valuable during Florida’s challenging hurricane season, providing reliable traffic data for emergency operations and evacuations. In New York, REKR secured access to approximately 115,000 miles of public roadways, marking a critical entry point for potential broader statewide rollout.
Rekor Systems, Inc. (NASDAQ:REKR) is implementing cost optimization measures expected to reduce 2025 expenses by up to $15 million compared to 2024. Management is focused on creating a leaner, more efficient operation while positioning for significant breakout opportunities in 2025 and beyond. The company has eliminated an additional $20 million in optional advances from Yorkville, demonstrating commitment to reducing reliance on external capital. With industry-leading technology platforms, AI capabilities and strong partnerships, REKR aims to transform 4.2 million miles of US roadways, potentially achieving a 40% CAGR in revenue over the next 5 years. With such strong growth potential ahead, REKR is one of the best AI penny stocks to buy according to hedge funds.
