Exploring Promising Small-Cap Stocks: Three Companies for Consideration

While megacap stocks like Apple, Microsoft, and Nvidia are widely known, don’t overlook small-cap stocks. These firms, with market capitalizations between $250 million and $2 billion, may surprise investors with significant returns.

Let’s delve into three noteworthy small-cap stocks that could be attractive for those looking to invest $1,000: Innodata (NASDAQ: INOD), Amplitude (NASDAQ: AMPL), and SoundHound AI (NASDAQ: SOUN).

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Innodata: Poised for Success with AI Innovations

Will Healy (Innodata): Despite being listed since 1993, Innodata remains relatively unknown. However, its specialization in AI technology could propel it into the spotlight.

The company’s low-code software assists clients in leveraging both traditional and generative AI, facilitating process automation and model training. This efficiency allows employees to focus on other tasks.

While facing competition from well-known firms like Accenture and Globant, Innodata has established agreements with five of the “Magnificent Seven” tech companies, a commendable achievement for a company valued at just over $470 million.

Investors have responded positively to its latest financial results. In the first half of 2024, revenue reached $59 million, marking a 54% increase year-over-year. Additionally, the company reported a profit of $975,000 in early 2024, a significant improvement from a loss of $2.9 million during the same period in 2023.

Stock performance has been impressive as well. Innodata’s stock price has surged over 90% this year and more than 1,000% over the past five years. Though its price-to-earnings (P/E) ratio may not yet be indicative of its recent profitability, the forward P/E is set at 35, which is reasonable given its revenue expansion.

While investing in small-cap stocks comes with risks, Innodata could yield significant returns if it maintains its current growth trajectory in the robust generative AI market.

Amplitude: Turning Challenges into Opportunities

Justin Pope (Amplitude): With a market cap of $1 billion, Amplitude offers sophisticated data analytics software designed to track user interactions with digital products, providing companies with insights to enhance marketing strategies.

Though Alphabet remains a dominant player in product analytics, Amplitude boasts a feature-rich platform that claims to provide clients with greater control.

However, Amplitude has seen a slowdown in revenue growth since 2022. Management has noted that clients initially over-committed to their services during low interest rates, leading to lower renewals now.

AMPL Operating Revenue (Quarterly YoY Growth) data by YCharts

Changes to its sales strategy aim to encourage customers to invest more as they transition from a free plan to paid services. Management anticipates revenue growth to reaccelerate, even with the expected setbacks in Q3 related to terminating contracts in Russia due to sanctions.

Despite these challenges, Amplitude remains financially solid, boasting positive cash flow and retaining approximately 30% of its market cap in cash. It carries no debt and offers one of the lowest enterprise value-to-sales ratios among software stocks at just 2.5.

With increased growth and improving business prospects, Amplitude holds promise for investors looking for returns in the near future.

SoundHound AI: Riding the Wave of Voice Technology Demand

Jake Lerch (SoundHound AI): Specializing in AI voice solutions, SoundHound AI serves various industries with its innovative technology.

Notable partnerships with companies like Honda, Hyundai, and Jeep focus on integrating voice-activated technology into vehicles. The company is also pioneering smart ordering and AI-enhanced drive-thru services.

The food service sector is increasingly turning to automation to enhance profit margins, and SoundHound collaborates with well-known brands such as Papa John’s, Chipotle, and Jersey Mike’s to optimize the customer experience using AI-driven voice interactions.

This expansion has positively impacted revenue. For the quarter ending June 30, SoundHound AI reported $13.5 million in revenue, reflecting a 54% increase from the previous year. The company’s trailing 12-month revenue stands at $55.5 million, significantly rising from $46.5 million.