We recently compiled a list of the 12 Best AI Penny Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Unisys Corporation (NYSE:UIS) stands against the AI penny stocks.
AI penny stocks are typically small-cap companies that focus on artificial intelligence technologies, such as machine learning, automation, and data analytics. These stocks, typically trading under $5.00 per share, belong to emerging tech firms that develop AI-powered software, robotics, or cloud-based AI solutions. Investors are drawn to AI penny stocks due to their high growth potential, as advancements in AI continue to disrupt and/or complement industries like healthcare, finance and cybersecurity. However, these stocks also come with significant risks, including volatility, low liquidity, lack of financial stability, and the potential for the share price to go to zero. These risks are even more pronounced in the context of the Chinese startup called “DeepSeek” potentially disrupting the AI inferencing market, meaning that some of the AI software and applications developed by penny stocks could eventually become commoditized and thus impossible to profitably monetize.
READ ALSO: 10 Hot AI Stocks to Buy Now
Hedge funds have been quite active in the AI space, as the most widely owned companies by hedge funds are large cap technology stocks with strong exposure to the AI megatrend. However, as hedge funds are striving to maximize their potential alpha, they are also actively seeking investments in the less followed small cap space and especially penny stocks. Hedge funds are also very keen to react to major market shifts and thus provide insights into potential major risks. Here is what Horizon Kinetics commented about the DeepSeek development during their Q4 2024 letter published in January 2024:
“How terrible are the implications for spending growth of the AI hyperscaler companies now that AI models can be developed for $6 million instead of a gazillion dollars? If that order-of-magnitude performance/cost breakthrough is true, that might be an even greater boon to AI spending. The use cases for AI are so deep, wide and all-pervading in the true economic productivity sense, that the pace of adoption and the volume load upon data storage, retrieval and processing might even accelerate. The build-it-and-they-will-come phenomenon.”
It is certain that some hedge funds view the recent developments as favorable and potentially fueling more research and progress from AI developers, many of which are penny stocks. If training and inferencing of leading AI models become exponentially cheaper, this per se means exponentially lower barriers to entry for startups and much lower budget requirements for the budget-tight small cap stocks. This shift could lead to a surge in innovation, allowing smaller AI firms to compete with established players by developing cutting-edge models at a fraction of the previous cost. Additionally, reduced computational expenses may attract more venture capital and institutional interest, further accelerating the growth of AI-focused penny stocks. The key takeaway for investors is that, while the 2023-2024 market gains were fueled by large caps, it may be finally that moment when mid and small caps, including penny stocks, follow through, by leveraging the growing GPU infrastructure base at big tech hyperscalers as well as the Chinese technology contribution. If that is the case, then observing where smart money (hedge funds) is flowing may offer unique insights into the best AI penny stocks to buy. Given this, we will take a look at some of the best penny stocks according to hedge funds.
A computer engineer developing a secure cloud infrastructure solution.
Our Methodology
To compile our list of AI penny stocks, we used Finviz to filter the technology companies with a share price of less than $5.00, as of March 14. We then individually identified companies that have significant revenue exposure to AI products or services. Finally, we compare the list with our proprietary database of hedge fund ownership as of Q4 2024 and include in the article the top 12 stocks with the highest number of hedge funds that own the 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Unisys Corporation (NYSE:UIS)
Number of Hedge Fund Holders: 25
Unisys Corporation (NYSE:UIS) is a global information technology company that provides a range of services, including digital transformation, cloud solutions, cybersecurity, and enterprise computing. The company offers technology consulting, managed services, and solutions that help businesses modernize their infrastructure and operations. UIS primarily serves industries such as financial services, government, healthcare, and commercial sectors. Its products include advanced AI solutions, with a focus on leveraging automation and machine learning to optimize business processes. The company has been investing in AI and data analytics to enhance its offerings and meet the increasing demand for intelligent, data-driven technologies.
Unisys Corporation (NYSE:UIS) delivered solid Q4 results with 10% sequential revenue growth and a strong non-GAAP operating margin of 11.6%. The company exceeded its initial free cash flow outlook and achieved its goal of improving cash conversion, with pre-pension free cash flow nearly doubling to $82 million in 2024. For 2025, UIS expects pre-pension free cash flow of approximately $100 million, demonstrating continued progress toward long-term goals. The company raised its License & Support (L&S) revenue expectations to approximately $390 million in 2025 and $400 million in 2026, with an average expected gross margin of approximately 70%. New business Total Contract Value (TCV) showed strong momentum, reaching approximately $790 million for the full year, up 29% compared to 2023, with new logo TCV more than doubling year-over-year.
Unisys Corporation (NYSE:UIS)’s strategic priorities for 2025 include focusing on AI, application services, ClearPath Forward 2050, and go-to-market initiatives. Unisys demonstrated operational improvements through sustained Ex-L&S gross margin expansion and stronger L&S performance, while the resolution of several legal matters in 2024 eliminates future headwinds to cash from legal costs. The company’s workforce initiatives showed positive results with low trailing 12-month voluntary attrition of 11.8% compared to 12.4% a year ago. With at least 25 hedge funds owning the stock, UIS is one of the best AI penny stocks to buy according to hedge funds.
Overall UIS ranks 2nd on our list of the best AI penny stocks to buy according to hedge funds. While we acknowledge the potential of UIS 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 UIS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks To Buy Now According to Billionaires
Disclosure: None. This article is originally published at Insider Monkey.
