12 Best AI Penny Stocks to Buy According to Hedge Funds

8. Red Cat Holdings, Inc. (NASDAQ:RCAT)

Number of Hedge Fund Holders: 9

Red Cat Holdings, Inc. (NASDAQ:RCAT) is a drone technology company that integrates robotic hardware and software for military, government, and commercial applications. Through its subsidiaries, RCAT has developed a Family of Systems, including the Black Widow™, a small unmanned ISR system that was awarded the US Army’s Short Range Reconnaissance Program (SRR) of Record contract. Other products in their lineup are the TRICHON™, a fixed-wing VTOL drone designed for extended endurance and range, and the FANG™, the industry’s first line of NDAA-compliant FPV drones optimized for military operations with precision strike capabilities. These offerings provide critical situational awareness and actionable intelligence to on-the-ground warfighters, battle commanders, firefighters, and public safety officials.

Red Cat Holdings, Inc. (NASDAQ:RCAT) has secured a significant sole source contract for the Black Widow drone program with the US Army’s SRR program, which involves 12,000 drones. The company has formed a strategic partnership with Palantir to integrate visual navigation and artificial intelligence capabilities into the Black Widow drone, making it one of the most capable military drones that can fit in a rucksack. RCAT has updated its revenue guidance from $50 million to $55 million, with expanded goalposts of $80 million to $120 million, incorporating expected SRR-related revenue. The Black Widow drone addresses two critical battlefield challenges: electronic warfare and GPS denial, with successful testing completed in EW World.

Red Cat Holdings, Inc. (NASDAQ:RCAT) is preparing for Low Rate Initial Production (LRIP) in the first half of 2025 and full rate production in the second half of 2025. Management expects the company to achieve up to 50% gross margins under mass production, with additional margin improvement potential from the high-margin Palantir software integration. The company has also acquired FlightWave, adding the Edge 130 drone to their product mix, which has the best flight time among Blue UAS list products. Recent quotes for Black Widow customers, excluding SRR, have reached approximately $14.7 million, primarily from US DoD customers. Given the significant technological advancements and at least nine hedge fund holders, RCAT is one of the best AI penny stocks to buy according to hedge funds.