Friday , 29 September 2023

Bubble Watch: A Shift – and Surge – In Small-cap AI Stocks Is Coming Soon

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Luke Lango, editor of Hypergrowth Investing, maintains that every bull market starts with large caps because investors become more confident but remain largely cautious and unwilling to get too risky, so they buy only “safe stocks” – large caps. However, in every new bull market – usually about 6-9 months after the market bottoms – there is a major shift: optimism and greed replace skepticism and caution and I couldn’t agree more.

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Typically, Lango says, the bull market shift starts once small caps start to meaningfully outperform large-cap stocks and this dynamic is playing out right now with AI and AI-related (AI&R) stocks.

  • The 20 top-performing AI&R stocks – those with market capitalizations in excess of $1B  as identified in an article posted on TalkMarkets earlier this week (see here) – are dramatically under-performing the top 10 small-cap AI&R stocks with market caps between $130M and $740M – since the bubble in AI&R stocks began to inflate at the end of April 2023 (i.e. +58.5% on average, vs, +110.0%, on average).

To take full advantage of this small-cap shift – and surge – consider investing in one or more of the 10 small-cap stocks highlighted below with their market capitalizations, stock prices and stock price appreciations over the last 3 months.

Please note: Information on each stock’s current short interest, company description, latest quarterly financials, and related news and articles are available by clicking on the stock’s trading symbol.

  1. Applied Digital (APLD): Market Cap $740M
    • July 21st Stock Price: $7.72; UP 168.1% since end of April
  2. SoundHound AI (SOUN): Market Cap $689M
    • July 21st Stock Price: $3.17; UP 40.3% since end of April
  3. Butterfly Networks (BFLY): Market Cap $494M
    • July 21st Stock Price: $2.42; UP 34.4% since end of April
  4. Innoviz Technologies (INVZ): Market Cap $438M
    • July 21st Stock Price: $3.21; UP 47.2% since end of April
  5. Innodata (INOD): Market Cap $330M
    • July 21st Stock Price: $11.75; UP 102.2% since end of April
  6. Applied Optoelectronics (AAOI): Market Cap $251M
    • July 21st Stock Price: $7.91; UP 373.7% since end of April
  7. Verses (VRSSF): Market Cap $227M
    • July 21st Stock Price: $1.64; UP 60.8% since end of April
  8. Rekor (REKR): Market Cap $190M
    • July 21st Stock Price: $3.07; UP 198.1% since end of April
  9. Veritone (VERI): Market Cap $151M
    • July 21st Stock Price: $4.11; UP 11.1% since end of April
  10. GSI Technology (GSIT): Market Cap $130M
    • July 21st Stock Price: $5.19; UP 246.0% since end of April

Average Market Cap: $364M; Average Stock Price: $5.02; Average 3-month Price Appreciation: 110.0% 

Conclusion

Lango believes that stocks should keep rallying very strongly in the second half of 2023 but that the rally will look a lot different than what we saw in the first half of the year: large-cap tech stocks will stall out and small caps will soar.

To take full advantage of this potential (and most likely) small-cap shift – and surge – consider investing in one or more of the 10 small-cap AI&R stocks highlighted in this article. Naturally, it is imperative that you do your own due diligence before making a decision to do so as my comments are not a recommendation, per se. I hope this article has made you aware of the opportunity.