ChatGPT had the quickest increase in user base of any application created to date. This was a market-forming event for Artificial Intelligence (AI) stocks. In early February on the news that ChatGPT hit 100 million users the AI stocks started to take off. In order to get users hooked on any new platform it’s typically free to drive adoption. After a user base reaches a critical mass then the platform looks for ways to monetize. OpenAI, the creator of ChatGPT, has started its monetization phase with a $20 monthly subscription for a faster and more stable service offering. When ChatGPT hits another major milestone like 500 million users AI stocks could explode and here are some names lurking around the bottom. There is a mix of big cap, micro cap, and misunderstood stocks in this report.
The purest play is C3.AI (NYSE: AI). It is an enterprise service provider that was initially focused on the oil and gas markets with Baker Hughes as their key strategic partner. They have since expanded to defense, intelligence, aerospace, healthcare, and telecommunications. Their algorithms go deep in an attempt to optimize not only the sales, but the supply chain. The company recently guided to $265 million for the year. They also announced a shift in their business model to usage based which is expected to benefit them in the long run. The company is a leader in the space with a current market cap of $2.5 billion.
SpringBig (NASDAQ: SBIG) is one of the most undervalued in the sector. Their current focus is in cannabis but they are quickly pivoting to the alcohol market where there is little to no competition. Despite the competition in the cannabis space SBIG has been thriving and actually dominating the sector with their loyalty-based Software as a Service (SaaS) business. Powered by AI, they have captured close to 1300 cannabis retailers in 1000 retail locations. The real strength of their business is the underlying recurring revenue stream with their subscription-based service. They also have a massive database estimated at 40 million users. They are expected to expand to vape and CBD but the alcohol and spirits business represents the low-hanging fruit for them at the moment.
The alcohol and spirits business is much larger than cannabis. There are 50,000 liquor stores in the United States. Early this year the company partnered with Combase, a POS (point of sale) vendor with a sizable footprint in the liquor space, but also has customers ranging from amusement parks to vape shops. The rewards business works well in these regulated marketplaces. The company figured out that the amount the consumer spends is based on their familiarity with the products offered. So the loyalty campaigns educate the customer and in turn they are apt to spend more once in the store.
SBIG has been quite volatile recently because of its tiny outstanding share count. There are 25.3 million shares issued and outstanding placing their market cap at $18.0 million. The company has gross margins in excess of 75% and is projecting sales between $31 to $34 million for the year. They are predicting an overall loss for the year but by mid year they are projecting profitability. The company is trading at a fraction of this year’s sales and is one of the most undervalued in the AI sector.
SoundHound (NASDAQ: SOUN) is an audio and speech recognition company that connects people to brands by customized conversational experiences that voice-enable products and services. Their core technology Speech-to-meaning takes speech and converts it to meaning in real time. SOUN is in restaurants, automotive, smart devices, hospitality, and contact centers. When ordering at a restaurant, it translates your conversational voice into an order on a screen you can see in real time. It basically takes the place of the order clerk at the drive-through restaurant. This technology reduced the errors in using speech recognition. They make money through royalties, subscriptions, and voice-enabled products. Some of their global customers are Hyundai, Mercedes-Benz, Pandora, Qualcomm, Netflix, Snap, Square, LG, VIZIO, KIA, and Stellantis. The company went public last year and has not been reserved with its number of news announcements. Their latest earnings report was very strong, with $9.5 mil in revenues and a booking backlog of $332 million. Yearly revenue hit $31.1 million. The company is still losing money but has $33 million in cash. The market cap is $320 million, hovering close to its booking backlog number.
The tiniest AI companies are AiAdvertising (OTCMKTS: AIAD), with its $5.0 million market cap, and Xalles Holding Inc. (OTCMKTS: XALL), with its $8.0 million market cap. AIAD is a next-generation AdTech company focused on harnessing the power of artificial intelligence (AI and machine learning (ML) to eliminate waste and maximize return on the digital ad spend. Their software can finely tune ads that surgically target consumers and drives up campaign performance. The company ended the year with $7.0 million in revenues. XALL has an AI-based advertising company in its holding company portfolio that targets incoming prospects by being able to interact and set up meetings for salespeople. With outbound calls the system helps generate demand for the clients and services. Their subsidiary AIGrowthHub Inc. will likely help them drive sales of their Health Insurance company to $20 million in sales in 2023.
One of the most underappreciated AI companies in the sector is Finger Motion Inc. (NASDAQ: FNGR). While they do less than a million in revenues, their Big Data division has access to the telecom data from all the telcos in China to build their predictive algorithms. These predictive behaviors are being utilized to craft personalized life, health, and car insurance for consumers in China. Right now insurance is risk-adjusted off of maybe 30 – 50 variables, with FNGR’s predictive algorithms, there are over hundreds of variables that are being considered. The AI part of this is that they can do this in real-time. While they build their insurance products of the future, they have an existing telecom business that could generate $100 million in sales. FNGR has a $68 million market cap and a strong balance sheet with over $10 million in cash.
ChatGPT growth is the key driver of AI stocks. While there aren’t any planned user updates when they are announced, it should continue to spark investor interest. The trend in AI is undeniable, and we are at the starting point of a new revolution in technology. The average AI stocks trade at a multiple of 5 times their enterprise value. Many of these smaller AI stocks would be considered value investments by some larger AI companies. Consolidation is likely to happen. Many of these stocks have strong fundamentals, and with the AI sector in rampant growth mode, the risk-benefit profile is very favorable.
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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. This article was written by a guest contributor and solely reflects his opinions.