We recently compiled a list of the 20 Hidden Gem AI Stocks. In this article, we are going to take a look at where Pegasystems Inc. (NASDAQ:PEGA) stands against the other hidden gem AI stocks.
The rise of artificial intelligence (AI) businesses has loomed large over finance markets in the past few months, pushing investor attention away from other topics. This is because AI-enabled breakthroughs are creating new areas of focus for investors and disrupting major industries. Some of the major themes in this regard include AI-powered systems for environmental monitoring, ethical discussions surrounding the role of AI in healthcare, and the continued evolution of large language models. For example, tech giant Microsoft recently led the development of an AI system capable of predicting air pollution on a global scale. This system generates real-time, hyperlocal pollution forecasts, using data from satellites and ground sensors. The breakthrough could prove crucial for public health, especially in densely populated areas that suffer from poor air quality. The implications of this development extend beyond environmental health to improving policy decisions worldwide.
Read more about these developments by accessing 33 Most Important AI Companies You Should Pay Attention To and 20 Industrial Stocks Already Riding the AI Wave.
Some important numbers illustrate this revolution in action. The global AI market was valued at around $208 billion in 2023 and is expected to reach $2 trillion by 2030, growing at a compound annual growth rate of 37% from 2024 to 2030 (as per estimates from Statista). According to recent surveys, about 35% of businesses are already using AI in some form, while another 42% are exploring its potential for future integration. Most of the AI usage is focused on process automation, customer insights, and data analysis. Hyperscalers are leading the innovation in this regard with multi-billion-dollar investments in AI data centers around the world. AI is also projected to both create and displace jobs. By 2025, AI is expected to displace 85 million jobs globally but create 97 million new roles, according to the World Economic Forum. These new jobs will primarily focus on AI development, machine learning, and AI governance. Investors should closely monitor these emerging trends to stay ahead of the curve and place their bets accordingly.
Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and Beyond the Tech Giants: 35 Non-Tech AI Opportunities.
Our Methodology
For this article, we selected AI stocks that do not receive much coverage from financial media or Wall Street analysts, but have AI-related operations and opportunities that are worthy of investor attention. These stocks are also popular among hedge funds.
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).
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Pegasystems Inc. (NASDAQ:PEGA)
Number of Hedge Fund Holders: 27
Pegasystems Inc. (NASDAQ:PEGA) develops, markets, licenses, hosts, and supports enterprise software in the United States. The company is an important player in the AI-powered workflow automation and decisioning market. One of the most popular AI innovations of the company is the Pega GenAI Blueprint, a tool which helps businesses revolutionize their processes by integrating generative AI capabilities to optimize decision-making and automate workflows. On the back of rising sales of this tool, the firm expects to reach close to $1.5 billion in revenue in 2024, up nearly 16% year-on-year. Additionally, Pega has been focusing on improving margins, particularly with their Pega Cloud, which achieved a gross margin of 77% in Q1 2024. It expects free cash flow to reach $350 million in 2024, up from $201 million in 2023.
Citi recently raised the price target on Pegasystems Inc. (NASDAQ:PEGA) stock to $92 from $87 and kept a Buy rating on the shares. The advisory updated models and preference rankings across the back office software group post the Q2 results, seeing potential for underappreciated SMID-cap software names to re-rate amid a more risk-on rate cut cycle with stability in IT budget spend and emerging AI opportunities.
Overall PEGA ranks 1st on our list of the hidden gem AI stocks. While we acknowledge the potential of PEGA as an investment, our conviction lies in the belief that some 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 PEGA 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.
