We recently compiled a list of the 12 Best Small Cap AI Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Consensus Cloud Solutions Inc. (NASDAQ:CCSI) stands against the other small cap AI stocks.
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.
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).
An overhead view of an electronic manufacturing plant, its intricate machinery and precision automation in action.
Consensus Cloud Solutions Inc. (NASDAQ:CCSI)
Market Cap as of December 2: $471.23 million
Number of Hedge Fund Holders: 17
Consensus Cloud Solutions Inc. (NASDAQ:CCSI) is a leading global provider of digital fax solutions and digital information exchange services. Its platform empowers businesses to streamline customer interactions across multiple channels, including voice, chat, and email. By using AI, it helps companies to enhance customer service, automate tasks, and gain valuable insights from customer interactions.
The company reported strong Q3 2024 results, driven primarily by the growth of its corporate channel, which caters to larger organizations, such as healthcare providers, financial institutions, and law firms. This channel experienced its best revenue growth in 6 quarters, with a 5.3% increase year-over-year, fueled by new customer acquisitions.
Its e-commerce platform, eFax Protect, has attracted significant new healthcare customers. Additionally, upselling existing SoHo (Small Office/Home Office) customers to the corporate channel and securing several key enterprise deals contributed to the overall growth of the corporate channel. The corporate customer base reached a record high of 58,000 accounts, with a stable average revenue per account of $310.
The company’s focus on customer retention yielded positive results, with a modest increase in revenue retention to 100% over the past 12 months in the corporate channel. Consensus Cloud Solutions Inc. (NASDAQ:CCSI) also leveraged AI-powered solutions to drive innovation and customer satisfaction.
Meridian Small Cap Growth Fund stated the following regarding Consensus Cloud Solutions, Inc. (NASDAQ:CCSI) in its first quarter 2024 investor letter:
“Consensus Cloud Solutions, Inc. (NASDAQ:CCSI), a leading supplier of both secure data delivery for enterprise healthcare interoperability and cloud fax solutions to small office home office (SoHo) customers, was spun out of longtime holding J2 Global (now Ziff Davis) in the fourth quarter of 2022. Consensus has historically enjoyed a high percentage of recurring revenues, low churn in the enterprise segment, and high margins. Much of the company’s current strategic focus is to build upon its legacy digital cloud fax service for the enterprise healthcare sector where data security and interoperability are key concerns. Despite an earnings report in line with expectations, the stock declined during the quarter on lower[1]than-expected guidance. The healthcare business continues to be under macro pressure, largely driven by IT staffing issues that are slowing enterprise-level adoptions of Consensus’ solutions. The company has rightly downshifted to a lower revenue reality and management is proactively shifting marketing spend from inefficient top-line growth efforts in its SoHo segment toward higher revenue generating customers in healthcare. We expect healthcare’s macro issues to eventually ease, resulting in revenue growth accelerating from the low single-digit growth today towards low double digits. The stock was recently trading at an attractive three times earning multiple with more than a 20% free cash flow yield. We believe that even modest growth from here and continued deleveraging could result in a materially higher share price. We maintained our position in the company during the quarter.”
Overall CCSI ranks 6th on our list of the best small cap AI stocks to buy according to hedge funds. As we acknowledge the potential of CCSI as an investment, our conviction lies in the belief that 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 CCSI 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.