Former House Speaker Kevin McCarthy joined CNBC’s ‘Squawk Box’ on November 26 where he emphasized the need for a new group he has created, the Alpha Institute, which aims to advocate for pro-technology proposals. He highlighted the importance of focusing on long-term technological advancements, particularly in AI and quantum technology, which he believes are critical for America’s future competitiveness.
McCarthy noted that legislators often become bogged down in daily issues and fail to consider the long-term implications of their policies. He shared that three years ago, he initiated a course to educate members of Congress on AI and quantum technologies, recognizing their significance in various sectors such as energy and defense. He argued that without reforming processes like permitting and enhancing the energy grid, the US risks falling behind in the AI race.
Later on December 2, Jay Jacobs, head of US BlackRock Thematic and Active ETFs, joined ‘Halftime Report’ with CNBC’s Bob Pisani to discuss the key themes to watch in the ETF space heading into 2025. Jacobs emphasized that one major trend for 2025 will be the acceleration of AI infrastructure and its integration into consumer issues. He outlined 3 distinct stages of the AI theme: the build phase, where significant investments are made in infrastructure; the mass adoption phase across enterprises and individuals; and the transformation stage, which will see entirely new industries emerge from AI advancements.
Jacobs pointed out that during the build phase, ETFs focused on semiconductors, such as SOXX, and digital infrastructure like IDTT will benefit significantly. As companies adopt AI technologies, software names are expected to gain traction, leading to a transformation that could create new market opportunities over the next five to ten years.
With this context, let’s take a look at the 12 best small cap AI stocks to buy according to hedge funds.
Methodology
We sifted through media reports and ETFs to look for AI companies trading under $5 billion. That’s our definition of small-cap stocks. We then selected the 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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).
12 Best Small Cap AI Stocks To Buy According to Hedge Funds
12. POET Technologies Inc. (NASDAQ:POET)
Market Cap as of December 2: $382.54 million
Number of Hedge Fund Holders: 5
POET Technologies Inc. (NASDAQ:POET) is pioneering innovative optical solutions for AI applications. Its core technology, the POET Optical Interposer, seamlessly merges electronic and photonic components, enabling high-speed data transfer, lower energy consumption, and superior computational power.
The company is gaining momentum through strategic partnerships. In Q3 2024, it secured a significant design win with Foxconn Interconnect Technology for 800G and 1.6T optical engines. Luxshare Tech, a major tech supplier, has also integrated its optical engines into its product line. To further strengthen its position, the company partnered with Mentech Technology and Mitsubishi Electric to develop cutting-edge 800G and 3.2T optical solutions — mostly all of these partnerships catering to AI and data center networks.
For its contributions to AI infrastructure, the company has earned industry recognition. In a strategic move to meet surging demand, it recently announced an expansion of its optical engine production facilities in Malaysia. These developments position POET Technologies Inc. (NASDAQ:POET) as a key player in the AI revolution.
11. BigBear.ai Holdings Inc. (NYSE:BBAI)
Market Cap as of December 2: $611.21 million
Number of Hedge Fund Holders: 7
BigBear.ai Holdings Inc. (NYSE:BBAI) uses AI to solve complex problems. Its AI-powered decision intelligence solutions are designed to assist organizations in sectors such as national security, supply chain management, and digital identity. By utilizing advanced technologies like machine learning and predictive analytics, it allows organizations to make informed decisions in challenging environments.
The company is making waves at the US Navy’s Mission Autonomy Proving Ground (MAPG) exercises. It’s showcasing its ConductorOS platform, designed to orchestrate AI models, data, and sensors from various sources. Through ConductorOS, BigBear.ai Holdings Inc. (NYSE:BBAI) aims to demonstrate the power of AI in unifying diverse technologies. This includes ensuring seamless interoperability between different AI models and sensors, regardless of their vendor. Additionally, the platform leverages edge computing to deploy AI algorithms in real time, enabling critical tasks such as forecasting enemy vessel routes.
By participating in MAPG, the company is positioning itself as a key player in advancing AI deployment within the Navy and the broader defense landscape. Its focus on AI-driven solutions is expected to significantly enhance maritime domain awareness, improve decision-making, and ultimately strengthen national security. This positions the company as a key player in the development and implementation of cutting-edge AI technologies.