In this article, we’re going to discuss the 7 Most Popular AI Penny Stocks Under $5.
An Analysis of AI Breakthroughs
Artificial intelligence has become increasingly important for businesses and industries to thrive in today’s rapidly evolving economy. Grand View Research reported that the global AI market was valued at $196.63 billion in 2023 and is expected to grow at a compound annual growth rate of 36.6% from 2024 to 2030 and reach $1.81 trillion by the end of the forecast.
Tech giants are driving AI adoption. Wall Street’s favorite GPU maker experienced significant growth, with its market cap surpassing $3 trillion on the back of strong demand for GPUs. In March, the Blackwell platform was introduced which featured the GB200 super chip, further dominating the AI chip market. This chip can train AI models with over a trillion parameters, which is essential for developing advanced large language models (LLMs).
This advancement of natural language processing in AI is a significant breakthrough. AI language models are integrated into the business world and beyond. Expert economists Joseph Briggs, and Devesh Kodnani report that the ability of AI tools to generate human-quality content is a huge milestone, bridging the communication gap between humans and machines. According to Goldman Sachs’ investment advisors, these AI tools could be valued at $7 trillion in the next 10 years, contributing to a 7% increase in global GDP.
A recent study from Stanford University found that businesses train AI models faster than academic institutions. In 2023, the industry-trained AI neared 51 significant machine learning models, while academia managed only 15. This trend persisted in 2024 despite rising training costs. ChatGPT 4, the latest model of ChatGPT, cost about $80 million to train. Google’s Gemini Ultra cost around $191 million.
OpenAI’s approach to fostering collaborative partnerships instead of competing directly with tech giants makes it an exceptional model. Macquarie’s Fred Havemeyer (lead software equity research analyst) praised GPT 4 for its “emotional intelligence”. The growing demand for AI chips, exemplified by OpenAI’s use of over 1.7 trillion parameters in its GPT 4 model, will further help NVIDIA and other AI chip manufacturers grow.
On August 20, Bloomberg reported that OpenAI is releasing a feature that will allow businesses to use their company data to customize GPT 4 so that it can be trained on additional information for niche tasks. This is an example of letting companies fine-tune the AI model to act as a customer-service chatbot for their subject areas. According to DeepL CEO, Jarek Kutylowski, specialised AI models are essential for companies to grow vertically.
PwC reported that the global AI market could contribute $15.7 trillion to the global economy by 2030, surpassing the combined output of China and India. It will also be responsible for a 26% boost in local GDPs. 45% of total GDP gains by this period will come from AI consumption. It will drive economic benefits through efficiency improvements for enhanced productivity, automated routine tasks, and higher-value work. Goldman Sachs reported that the average increase in productivity with the use of AI is 25%.
Some big economic gains from AI in 2030 will come from China with a 26% boost to GDP, and North America with a 14.5% boost, accounting for almost 70% of the global economic impact. The impact of AI is evident when we see instances like half of CNBC Disruptor 50 companies incorporating AI into their core operations. 34 companies consider it critically important to their revenue, while 13 identify generative AI as a key sales driver.
By 2025, 97 million people are expected to be employed in AI-related roles, many people have also lost their jobs to AI. Bloomberg reported that more than 130,000 employees have been laid off across over 400 companies this year. This number is still down by 40% compared to the layoffs of 2023. Companies find this is the only way to cut costs and are hence ramping up investments in AI.
There are also concerns about AI leading to a safer space for scammers due to its ability to create convincing fake images and messages. Berkshire Hathaway Chairman and CEO Warren Buffet says that AI scamming will be the next big ‘growth industry’.
Most analysts and experts are bullish on AI over the long term. According to Goldman Sachs analysts, many businesses plan on spending over $1 trillion on AI infrastructure in the upcoming years. In August, Nicole Peng, senior vice president of mobility at Canalys suggested that the AI industry could potentially be recession-proof. This is because AI advancements are not just ‘improvements’ on existing businesses, but rather fill an unavoidable consumer demand for increased efficiency and improved solutions for companies.
The AI industry is booming and every industry and company has been disrupted since the launch of ChatGPT. Finding untapped AI stocks with huge growth potential is a challenge right now and this is where we come in. Let’s now look at the best AI penny stocks to buy now according to hedge funds.
7 Most Popular AI Penny Stocks Under $5
Our Methodology
To compile our list, we sifted through ETFs, online rankings, and Reddit threads to compile a list of 12 AI penny stocks. We then selected the 7 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 Q2 2024.
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).
7 Most Popular AI Penny Stocks Under $5
7. Beamr Imaging Ltd. (NASDAQ:BMR)
Number of Hedge Fund Holders: 1
Beamr Imaging Ltd. (NASDAQ:BMR) is an Israel-based video technology and image science software company. It creates software that enhances video and image quality, without using a lot of data (50% reduction).
The product portfolio includes software development kits, bitrate control libraries (amount of data transmitted per unit of time), and photo optimization tools. These solutions are used by businesses worldwide.
In the first 6 months of 2024, revenues increased by 5% to $1 million, as compared to the same period in 2023. The increase was driven by signing new license agreements offset by those terminated. Beamr Imaging Ltd. (NASDAQ:BMR) estimates generating $3.50 million in revenue by the end of 2024, with 2.25% year-over-year growth.
Q2 2024 featured many developments — Beamr Cloud video services integrated AI features, and an improved product pricing model for businesses was introduced through special plans, subscriptions, and prepaid packages.
Video processes now focus on AI-integrated developments as much as storage and streaming challenges. Beamr Cloud’s AI services allow searching inside the video (like in text) and automate transcription generation in multiple languages. It accelerates delivery to customers in higher quality. Later this year, the company plans to release additional video AI enhancement features.
In February, the company raised about $13.8 million by selling shares. Haggai Barel was recently appointed as COO to contribute to R&D, product, and marketing, and seeking new collaborations, such as those with AWS, OCI, and Nvidia. Beamr Imaging Ltd. (NASDAQ:BMR) is one of the most popular AI penny stocks to buy right now.
6. Predictive Oncology Inc. (NASDAQ:POAI)
Number of Hedge Fund Holders: 2
Predictive Oncology Inc. (NASDAQ:POAI) is a knowledge and science-driven company that uses AI to help find and develop better cancer treatments.
In Q2 2024, the company recorded revenues of $279,000, compared to $490,000 for the same period in 2023. The net loss per share was $0.68, as compared to $0.98 in Q2 2023.
Revenues primarily came from the company’s EGAN operating segment. This segment focuses on using AI for drug discovery and development processes, such as analyzing large collections of tumor samples to see how patients respond to drugs and improve treatment results. It collaborates with hospitals and research institutions.
Predictive Oncology Inc. (NASDAQ:POAI) has expanded AI offerings to discover new biomarkers for cancer. A recent study with UPMC Magee-Womens Hospital identified factors that drive overall survival in ovarian cancer. Such advancements help address unmet needs in oncology, such as ovarian cancer, where treatment options are limited. Management pointed out that the biomarker discovery market is estimated at over $51 billion in Q2 2024.
One key advancement is the new 3D cell culture technology, which offers an accurate method for testing drug candidates, reducing costs and time to market. At the Q2 earnings call, the management said that the 3D cell market is expected to grow from $1.4 billion in 2022 to $5.3 billion in 2032, representing 14% annual growth. Such ventures make Predictive Oncology Inc. (NASDAQ:POAI) one of the best AI penny stocks to buy right now. The stock is a best-positioned enabler of AI’s use in oncology, an industry that’s extremely early in its growth story.
2 hedge funds hold stakes in the company, as of June 30, with Renaissance Technologies being the top shareholder with a position worth $25,663.
5. Inuvo, Inc. (NYSE:INUV)
Number of Hedge Fund Holders: 2
Inuvo, Inc. (NYSE:INUV) is a US-based advertising technology and services company that provides AI-integrated software solutions to businesses for effective advertising. The company’s customers include brands, advertising agencies, and platforms that buy and sell advertising space.
Inuvo, Inc. (NYSE:INUV) generated $18.21 million in Q2 2024. While this was $2.76 million lower than estimates, it exhibited a 9.35% year-over-year growth and was up by about 6.5% from Q1. The loss per share was $0.01, less than the $0.02 loss per share of Q1.
The net loss improved to $1.7 million compared to $3.4 million in the previous year, reflecting a ~50% year-over-year improvement.
The company is focused on scaling revenue from signing mid-sized agencies and brands directly and attracting clients including major technology companies and global car manufacturers, through improvements in self-service features.
One of the company’s biggest partners is Google. Google’s recent announcement on giving consumers more control over cookies is seen as a positive shift for Inuvo, Inc. (NYSE:INUV), as their AI tech does not rely on cookies for ad targeting, unlike competitors.
Predictive Media Mix Modeling is a data-driven approach for businesses to understand how different marketing channels contribute to their sales or marketing aims. The company’s new product in this segment uses advanced analytics to predict the most effective allocation of marketing, which is being recognized by many major clients. The company in its latest earnings call also announced entering into a master services agreement with a large global retailer. All this together makes Inuvo, Inc. (NYSE:INUV) one of the best AI penny stocks to buy right now with material growth potential.
The stock is held by 2 hedge funds as of June 30. The bigger shareholder is Renaissance Technologies with a position worth $154,336.
4. Perfect Corp. (NYSE:PERF)
Number of Hedge Fund Holders: 9
Perfect Corp. (NYSE:PERF) is a global SaaS artificial intelligence and augmented reality company, helping businesses sell their beauty and fashion products. It uses cloud-based AI technology that lets people try on makeup, jewelry, and clothes online without putting them on, making online shopping immersive. The company has an expansive client base including some major brands like L’Oréal, Estée Lauder, and Sephora.
In Q2 2024, Perfect Corp. (NYSE:PERF) generated $13.91 million in revenue, representing 9.60% year-over-year growth. The earnings per share for the quarter were $0.01.
AI-AR cloud solutions and the company’s mobile app subscription business drove growth. The subscription revenue contributed 92.8% to the total revenue. The mobile app’s active subscribers surged by 18.3% year-over-year, reaching an all-time high of over 919,000.
Growth was also driven by additional categories and increased popularity of GenAI technologies for AI creation and editing features for photos and video. Since Q1 2024, the customer base increased by 20 brand clients, achieving a total of 686 brand clients with over 774,000 SKUs for makeup, skincare, eyewear, and jewelry products by the end of June.
In Q2, the company launched the world’s first HD skin analysis solution capable of detecting 2x higher precision when doing AI skin analysis on a user’s face. The improved AI model can handle more input data from high-definition smartphone cameras. Other significant strides include the ability to seamlessly transfer makeup looks from images, and the option to virtually try on multiple jewelry items simultaneously.
Perfect Corp. (NYSE:PERF) is executing well on its expansion and its technological innovations such as the HD skin analysis solution are going to help it grow meaningfully in the future. It is one of the best AI penny stocks to buy now. It is held by 9 hedge funds as of June 30.
3. BigBear.ai Holdings, Inc. (NYSE:BBAI)
Number of Hedge Fund Holders: 9
BigBear.ai Holdings, Inc. (NYSE:BBAI) is a technology company that specializes in decision intelligence solutions by AI for use cases in defense, manufacturing, warehouse operations, healthcare, and life sciences. It helps its clients make informed data-driven decisions.
One of the company’s biggest goals is to help customers gain the ability to rapidly adopt and integrate Al-powered solutions on the edge cloud. The general availability of such a platform will be in 2025.
The company recorded $39.78 million in revenue for Q2 2024, representing a 3.44% year-over-year growth. The loss per share was $0.05 but beat Street expectations by $0.02.
In Q2, BigBear.ai Holdings, Inc. (NYSE:BBAI) won a $7.7 million, 7-month contract as the sole provider of a new mission management system for the US Army Test and Evaluation Command (Phase 2). The company will replace the US Army’s outdated system with a modern, user-friendly cloud platform, for project management, data access, collaboration tools, and advanced analytics.
It also secured an $8.5 million, 6-month extension to continue developing the Global Force Information Management system. This solidifies the company’s role as a prime contractor for the US Army and will help in migrating a prototype to the Army’s cloud infrastructure, aligning with their modernization goals.
BigBear.ai Holdings, Inc. (NYSE:BBAI) is strongly committed to ethically responsible AI development and advocates for international collaborations in establishing AI accountability frameworks.
Although the company lowered its sales guidance, it did announce a deal with Concept Solutions and the Federal Aviation Administration (FAA). The company is expected to thrive as AI penetrates the defense space and is still early in its growth story. The company has the potential to grow its market share as it continues winning contracts and signing deals. The stock is one of the best AI penny stocks to buy right now. As of June 30, 9 hedge funds hold stakes in the company.
2. Lantronix, Inc. (NASDAQ:LTRX)
Number of Hedge Fund Holders: 13
Lantronix, Inc. (NASDAQ:LTRX) is a global provider of Internet of Things (IoT) solutions which help businesses connect devices to the Internet. It specializes in connectivity, compute, and software technologies that enable devices to connect and communicate securely with higher efficiency, in industries like healthcare, transportation, building automation, and retail.
In FQ2 2024, the company generated a revenue of $41.2 million, beating estimates by $962,800 and logging a 25% year-over-year growth. The earnings per share were $0.11 and also exceeded expectations by $0.01. IoT System Solutions revenue alone surged by 91% year-over-year.
Lantronix, Inc. (NASDAQ:LTRX) is expanding in the smart grid and automotive sectors. They secured a repeat order from a major smart grid customer and are actively engaging with automotive original equipment manufacturers (OEMs) to provide solutions for interactive displays and digital cockpits.
It is combining edge computing devices with its Percepxion IoT software to make it easier for businesses to use AI in an edge network orientation. This way, businesses can process data closer to where it’s created, improving efficiency and reliability.
Recently, it entered into a cooperation agreement with 180 Degree Capital, a significant shareholder. This included the nomination of directors, Derhacobian and Palatnik, bringing extensive experience in the technology industry to contribute to improvements at the company.
As Lantronix, Inc. (NASDAQ:LTRX) continues to make strides in the Internet of Things (IoT) industry with newer developments and partnerships, it has the potential to become a multibagger in the years to come. LTRX is ranked 2nd among the best AI penny stocks to buy right now.
13 hedge funds hold this company as of June 30, with First Eagle Investment Management being the highest shareholder, with a position of $3.03 million.
Wasatch Micro Cap Value Strategy stated the following regarding Lantronix, Inc. (NASDAQ:LTRX) in its first quarter 2024 investor letter:
“Another significant detractor was Lantronix, Inc. (NASDAQ:LTRX), which provides integrated software and application development, software as a service (SaaS) management, intelligent edge computing and a wide range of sensors and trackers. The stock moved higher early in the quarter based on expectations for strong revenues and earnings. But when the numbers were released later in the quarter, the stock plummeted because Lantronix failed to meet expectations. While we were disappointed along with other investors, we note that revenues and earnings did in fact increase—albeit modestly. Considering the attractive valuation currently, we’ve maintained our position in the company.”
1. Nerdy, Inc. (NYSE:NRDY)
Number of Hedge Fund Holders: 14
Nerdy (NYSE: NRDY) is a leading platform for live online learning and tutoring, with a mission to transform the way people learn through technology. The company uses AI to connect learners of all ages to experts and launched its flagship platform, Varsity Tutors. Students can access more than 3,000 subjects in different formats – one-on-one, group classes, and self-study.
For Q2 2024, Nerdy, Inc. (NYSE:NRDY) recorded $51 million in revenue, which was lower than analyst estimates but still showed a 4.39% year-over-year growth. Moreover, the loss per share was $0.08, ahead of Street expectations by $0.05.
Consumer Learning Membership’s subscription revenue increased 2% year-over-year and represented 72% of total company revenue. New consumer customer acquisition also rose 12% year-over-year. Active members of 35,500 as of June 30 were up 15% year-over-year.
The institutional business represented 21% of total revenue, with a 33% year-over-year increase. This segment of the company allows the introduction of products to school districts, and during Q2, it enabled access to the Varsity Tutors for Schools platform at nearly 600 school districts, for an additional 1.1 million students (bringing the total to 3.3 million students).
The company has merged all school institutional customers onto a single platform, providing a unified and personalized learning experience.
The lowest-priced product of Nerdy, Inc. (NYSE:NRDY) didn’t encourage consistent use, so it’s refocusing product selection towards premium memberships that emphasize a weekly tutoring habit with a consistent tutor.
According to Grand View Research, the global EdTech market size was estimated at $142.37 billion in 2023 and is expected to grow at a CAGR of 13.4% from 2024 to 2030. With the EdTech industry booming, Nerdy (NYSE:NRDY) is set for growth, and hence can deliver higher returns in the upcoming years. 14 hedge funds are bullish on the stock, as of June 30.
While we acknowledge the potential of Nerdy (NYSE:NRDY) to grow, our conviction lies in the belief that some AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NRDY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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