We recently compiled a list of the 10 Best Technology Penny Stocks to Invest in Now. In this article, we are going to take a look at where Aurora Innovation, Inc. (NASDAQ:AUR) stands against the other technology penny stocks.
According to the U.S. Securities and Exchange Commission (SEC), a penny stock trades for less than $5 per share. Penny stocks are often associated with growing companies with smaller market caps, limited cash flow, and restricted resources. However, it allows the investors to reap benefits from the long-term growth of the company, though these stocks are cheap to invest in they carry a greater risk of loss to the investors.
A higher level of volatility and lower liquidity sets them apart from regular stocks. In other words, higher volatility suggests that investors should expect a drastic change in prices in a given period, resulting in a potential gain or loss. Penny stocks may confuse an investor due to speculations and an inherent uncertainty in gauging its price fluctuation and therefore, these securities are suitable for investors that have a high tolerance for risk.
In addition, a low level of liquidity indicates that these stocks are difficult to sell because there may not be enough potential buyers available. However, not all penny stocks are the same, a diligent investor needs to find stocks that may be undervalued by the market but have the upside potential of growth in the future.
Similarly, there are plenty of good quality penny stocks in the technology sector that are suitable picks for investors looking to invest for long-term growth returns. Before discussing the list, let’s first explore the growth of the technology industry over the past years:
The year 2021 was a memorable one for the tech industry as COVID-19 accelerated digital transformation across enterprises and the demand for remote-work-related hardware and software increased considerably. Moreover, the shortage of semiconductors made headlines as chip manufacturers could not keep up with the surge in demand. The global IT spending grew nearly 10% compared to the previous year.
The technology sector faced challenges in the past two years due to high interest rates, elevated inflation, and considerable macroeconomic and global uncertainties like supply-chain disruptions amid Russia’s invasion of Ukraine. These events contributed to softening of the consumer spending, lowering demand, and reduction in the workforce in 2022. The headwinds continued in 2023 with the downsizing of the labor force and a slight weakening of consumer spending.
Looking forward, economists have assessed a lower risk of recession and tech analysts are optimistic that the tech industry can make a comeback with modest growths in 2024.
Role of Gen-AI in the uplift of the Technology Industry:
Generative AI is a form of machine learning that uses patterns in training data to generate new text, video, images, code, or music that can potentially be indistinguishable from what humans can create. Improvement in transformer-based neural networks in language models has enabled an AI boom in the industry, one such example is Chatgpt.
Companies are integrating AI into their day-to-day operations, and executives across the globe are recognizing the importance of AI in organizing data. According to a forecast by Bloomberg Intelligence, the generative AI market is projected to grow at a CAGR of 42% by 2032 and reach a market size of $1.3 trillion in 2032 from $40 billion in 2022.
Historically, the demand for semiconductors has been largely driven by mobile computing and its use for manufacturing processor chips. However, at present, we witness a novel source in the form of Gen-AI that is accelerating the demand for semiconductors. According to research, the demand for powerful semiconductors could boost the sales of the semiconductor chip industry to $1 trillion by 2030 from $500 billion today.
In addition, the software development service industry is a formidable market with high growth potential for small companies. According to a report by Cognitive Market Research, the global software development service market size was $409.2 billion in 2022 and is projected to grow at a compound annual growth rate of 10.5% from year 2024 to 2031.
Our Methodology:
To compile this list of the 10 best technology penny stocks to invest in, we analyzed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024. To draft this list we filtered tech stocks trading under $5 with a price-target upside of over 30%, and 50 – 70% of shares owned by institutions. We ranked those stocks based on the number of hedge fund holders and then arranged the list based on the ascending order of hedge fund sentiment towards each 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 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A closeup of a self-driving hardware unit inside the dashboard of a passenger vehicle.
Aurora Innovation, Inc. (NASDAQ:AUR)
Number of Hedge Funds Holders: 27
Aurora Innovation, Inc. (NASDAQ:AUR) is a self-driving vehicle technology company that is focused on developing and operating Aurora Driver, a platform that integrates software, data services, and hardware that can be installed in cars for autonomous driving.
Aurora driver is a self-driving system designed to operate multiple types of vehicles from ride-hailing passenger vehicles to freight-hauling trucks to enhance transportation safety and efficiency. Aurora is working with a lot of industry leaders in the transportation ecosystem like Toyota, Uber, Uber Freight, Ryder, FedEx, Volvo Trucks, and Werner.
Since 2021, Aurora’s autonomous trucks have carried goods over 1 million kilometers on public highways. However, there was always a human safety driver sitting in those self-driving heavy vehicles. Ever since there have been only three minor crashes involving those trucks, the company claims that all these crashes were due to the mistakes of other drivers changing lanes on the road. Moreover, no one got hurt, and trucks always pulled off safely to the side of the road. In the U.S. the progress on self-driving vehicles has faced delays due to unfortunate crashes that add up new rules to enhance safety.
Aurora and other selfless driving companies argue that there has been a lot of time and effort invested in ensuring the safety and readiness of these autonomous vehicles. In addition, the advanced laser and radar sensor technology allows these vehicles to analyze the traffic far better than humans which makes them more efficient and safer.
Aurora Innovation, Inc. (NASDAQ:AUR) has attained a 95% autonomy readiness measure signaling a significant advancement towards their goal of user safety, efficiency, and readiness of their autonomous vehicle driving technology.
The company’s innovation showed promising results in terms of road safety tests, including its adaptability to navigate complex road scenarios with quick responses ensuring safety. The system can perceive 360 degrees of the operating environment, and with its advanced modeling support can anticipate and respond to the unpredictable road behavior of other drivers.
This achievement provides an opportunity for investors looking to capitalize on the market of self-driving technology in the years to come. Research suggests that the demand for autonomous vehicles is likely to expand in the future, the market is expected to grow from $52.09 billion in 2023 to $677.23 billion in the year 2031.
Despite recent innovations, the company managed the operating expenses within the planned limits and maintained a robust balance sheet showcasing $1.2 billion in cash and investments, and a net cash of $998 million. In Q1 2024, the company reported an EPS of $-0.11, beating the analysts’ expectation of $-0.14. Operating expenses were $208 million in Q1 2023 which came down by 7.2% to $193 million in Q1 2024.
Despite the progress in autonomy readiness, the company still needs to address the final validation and safety claims before commercial launch. In addition, to fund these projects the company used approximately $150 million cash on operations although managed still represents a significant expense.
Furthermore, the company needs to make prepayments for hardware components so that there can be a ready supply for a smooth commercial launch of autonomous vehicles. This scenario creates a vulnerability linked to dependency on the supply chain as any disruption in the supply chain can affect or delay the launch.
According to Insider Monkey’s database, 27 hedge funds held stakes in Aurora Innovation, Inc. (NASDAQ:AUR) and the total holdings are worth $160.8 million.
Overall AUR ranks 2nd on our list of best technology penny stocks to buy. While we acknowledge the potential of AUR as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AUR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
