Unless you’ve been living under a rock recently, you might have heard of this thing called ChatGPT, the chatbot hogging the headlines. Powered by artificial intelligence (AI), its potential to have an impact on everything from education to law to coding to journalism, amongst many other applications, has caught the public’s imagination. And those of Big Tech CEOs too.
With Microsoft now integrating AI into its search engine, representing the big news of the past week, AI stocks have become hot property. And while Google and the other tech giants are sure to up their game in attempts to rein in Microsoft’s first mover advantage, there are also plenty of smaller companies that will offer investors an opportunity to ride the trend.
With this in mind, we delved into the TipRanks database and pulled up two AI-focused names that fit a particular profile; both are small caps with share prices under $5, while also being recipients of Strong Buy consensus ratings from the Street’s experts. Let’s see what makes them appealing choices to ride the AI boom.
FiscalNote Holdings (NOTE)
Let’s first take a look at FiscalNote, a company that utilizes cutting-edge tools like machine learning and natural language processing to make sense of unstructured and dispersed data sources. By doing so, it assists individuals and organizations in better comprehending and acting on the issues that are important to them. Essentially a technology provider of global policy and market intelligence, FiscalNote gives its clients mission-critical insights and the means to put them into action by merging AI technology, actionable data, and expert and peer perspectives.
One on-trend move to note here is that prior to 2022, FiscalNote had used different third-party platforms together with its own data and algorithms, but having cited its ease of use, during 2022, pivoted toward using OpenAI, the maker of ChatGPT.
The company is relatively new to the stock market, having gone public via a SPAC merger last August. In its most recent quarterly report, for 3Q22, revenue increased by 33.5% to $29.1 million, albeit missing the Street’s forecast by $3.26 million. EPS also fell short of expectations, at -$1.63, some way off the -$0.13 forecast.
For the full-year outlook, the company sees revenue coming in between $112 million to $114 million (consensus had $123.85 million). FiscalNote sees an Adjusted EBITDA loss of $24 million to $22 million for the year but said it remains on track to reach positive Adjusted EBITDA in 4Q23.
Going by recent checks, with hitting positive 4Q23 EBITDA being a key goal, Northland’s Michael Latimore believes the company is “executing well.”
“The experienced management team sees ways to optimize corporate resources in the current macro environment, leading to a durable, sustainable business model,” the 5-star analyst said. “We believe the company is a category creator, and further showing it has a durable business model reflective of such a market position. Customers use FiscalNote for myriad use cases, which can shift to efficiency gains from revenue generation when the macro environment changes.”
These comments form the basis for Latimore’s Outperform (i.e., Buy) rating while his $9 price target makes room for abundant gains of 164% in the year ahead. (To watch Latimore’s track record, click here)
In general, other analysts echo Latimore’s sentiment. 3 Buys and 1 Hold add up to a Strong Buy consensus rating. Based on the average price target of $8.63, the upside potential comes in at ~155%. (See FiscalNote stock forecast)
Nerdy, Inc. (NRDY)
There’s lots of talk about the transformative nature of AI and that fits in well with Nerdy’s agenda, a company on a mission to transform the way people learn. Nerdy operates a platform for live online learning, making use of tech and AI to deliver personalized learning experiences for its students. These range from one-on-one instruction to small groups and large classes, with the platform offering more than 3,000 subjects and catering to students of all ages.
The company uses AI to pick the ideal tutor according to a learner’s needs, and in fact, appears to be leaning heavily into the AI opportunity; earlier this month, it announced it is launching two new AI-based products, on top of integrating ChatGPT into its services. One offering is the AI-Generated Lesson Plan Creator, which will be instilled in the company’s live learning platform and at hand during live tutoring classes. The other product is AI-Generated Chat Tutoring, which offers constant, real-time support for Learning Membership customers.
On the financial side, in Q3, Nerdy generated revenue of $31.8 million (up 1.6% year-over-year), meeting Street expectations, while EPS of -$0.21 came in ahead of the -$0.28 forecast. For Q4, revenue is anticipated to be in the $39-41 million range and for the full year 2022, the company expects revenue between $160-162 million.
Covering this stock for Northland, analyst Greg Gibas thinks the new products are a “solid addition to the tutoring platform.”
“Remember that NRDY already uses AI capabilities to identify the highest quality experts, assess Learners’ foundational knowledge, and help to ensure the right Expert-Learner match, among other uses,” the 5-star analyst said. “The newest advancements will allow NRDY to rapidly develop transformative experiences involving the real-time generation of content with near-zero incremental costs, thereby improving the ability to deliver live human interaction and personalized learning at scale.”
This top analyst doesn’t stop with an upbeat comment; he also gives NRDY shares an Outperform (i.e. Buy) rating and a target price of $ to indicates potential for ~35% share gains in the year ahead. (To watch Gibas’s track record, click here)
The bulls have it on this one. 6 Buys and 1 Hold have been published in the last three months. Therefore, NRDY gets a Strong Buy consensus rating. Given the $4.36 average price target, the upside potential comes in at 47%. (See Nerdy stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.