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Artificial intelligence stocks have been completely down lately.Valuations of well-known leading AI companies such as Nvidia (NASDAQ:NVDA) Stocks soared as investors rushed into everything related to this hot sector. Although there has been some cooling in some tech industries recently, AI stocks are still significantly higher. Their valuations already factor in years of flawless execution and blockbuster product growth.
But that doesn’t mean there aren’t diamonds in the rough yet. Not all AI stocks have risen to all-time highs. Several AI sleeper stocks are still floating around under Wall Street’s radar, and their valuations still don’t fully account for their disruptive potential. If the AI boom continues, smart investors could make huge profits by buying these quiet winners before the crowd.
Otaku (NRDY)
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This live learning company leverages AI and software to educate students in an engaging way.
Otaku (New York Stock Exchange:NRDY) has certainly been on a roller coaster ride, with the stock going virtually nowhere in nearly two years and dropping a stomach-churning 76% from its 2021 peak. However, in my view, the company still has significant upside potential as it remains highly leveraged. Reputation as an AI-focused business.
Nerdy may not be using advanced AI capabilities like conversational bots or deep learning algorithms, but just branding yourself as an AI company has powerful cognitive benefits these days. Even if a company’s actual technology isn’t cutting edge, the AI label alone can send its stock price soaring.
Nerdy has been growing its revenue rapidly and is expected to expand by approximately 20% annually going forward. Moreover, profitability will be achieved soon and the break-even point will be around 2026-2027. However, the company’s stock trades at just 1.3 times sales, a surprisingly low multiple for a company billed as an AI company. As far as I know, no other AI software company has such a modest valuation.
Clearly, Mr. Market still doesn’t buy into Mr. Nadi’s AI story. But as investors chase his next wave of AI winners, I expect his Nerdy to gain attention. Its growth trajectory and low valuation could make it an attractive AI turnaround candidate. Nerdy may be overstating his company’s AI capabilities, but in this market perception is reality. Fundamentals aside, companies labeled as AI disruptors look like they have the potential for explosive growth. Nerdy reached $5.3 in August 2023, and I see no reason why he can’t do it again if this AI euphoria continues. The risks and rewards here look compelling.
UiPath
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I’ve been bullish on robotics for a long time. Autonomous machines will likely be the next stage of AI expansion. While white-collar office jobs were initially thought to be the safest from the risk of eviction, AI is now automating many repetitive administrative tasks. But blue-collar manufacturing and construction jobs remain plentiful, and humans remain the preferred complex skilled worker. I predict that the next wave of robotics will disrupt these fields. Robots have already replaced many manual tasks.
Of course, robots that perform complex and dexterous movements are still in the early stages of development.but UiPath (New York Stock Exchange:path) provides essential robotic process automation software that enables companies to use primitive robots for basic repetitive tasks. This niche market has significant growth potential as companies look to reduce costs through automation. Despite UiPath’s price-to-earnings ratio of 40x, there is tremendous growth opportunity ahead to justify that valuation.
Wall Street expects UiPath to increase its earnings per share by more than 45% over the next three years. As industrial automation advances, UiPath’s innovative software should continue to be an essential component. This is a long-term winner and can deliver explosive returns for patient investors.
Accounting notes (notes)
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accounting memo (New York Stock Exchange:Note) lags significantly behind the broader software field. The company has been essentially flat over the past year, dropping a whopping 83% from its peak. However, I see considerable recovery potential as this AI-powered data analytics provider’s financial performance improves.
FiscalNote is expected to return to positive revenue growth, with revenue increasing by 8% starting next year. This is a modest pace, but stable enough considering the cash burn challenges. More importantly, losses are starting to decline significantly. In 2022, FiscalNote lost $218 million on revenue of just $114 million. However, in 2023, his losses narrowed to $115 million against revenue of $134 million. In 2025, it expects to have a loss of just $26 million on revenue of $135 million.
If FiscalNote maintains this trajectory, profitability may not be far away. And that could send the battered stock price soaring toward all-time highs. Unlike other AI stocks with nosebleed valuations, NOTE stock trades at just 1.8 times sales since the crash. The combination of a return to growth and low expectations creates the perfect environment for upside surprises.
On the date of publication, Omor Ibne Ehsan did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com Publishing Guidelines.
