Artificial Intelligence was once a conversation of dreams and fantasy.
But today, A.I. is a very real thing, and it is significantly advancing the development of our civilization.
And that is putting it lightly.
For those unfamiliar with the concept of Moore’s Law, it essentially means that every couple of years, the performance of computer technology doubles, while the cost of them halves.
In other words, technology is increasing at an exponential rate and we humans are reaping the benefits.
Well, as long as robots don’t take over the world.
To put this into perspective 45% of the total economic gains by 2030 are expected to come from product enhancements made by artificial intelligence technology, according to PwC.
This means that A.I. could add as much as $15.7 trillion to the global economy while boosting local GDPs by an additional 26%.
If these numbers aren’t convincing enough, 83% of companies claim that A.I. is a top priority in their business plan which hints that the adoption of A.I. is only just beginning.
From its humble beginnings in 1946, as a 50-ton behemoth known as the ENIAC to the deep learning, cloud computing machines we know today, A.I. is no longer the future, it is the present, and we’re living in it.
In today’s newsletter, we explain why we are bullish on the A.I. industry, why the current trends are set to last, and five small-cap A.I. stock picks we believe have huge upside potential.
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The Artificial Intelligence Industry at a Glance
Artificial Intelligence may be the most promising industry we have covered so far.
By the end of the decade, the global A.I. market is projected to grow from $384.7 billion in 2022 to $1.39 trillion in 2029.
That is a compound annual growth rate (CAGR) of 20.1%!
Furthermore, there is significant investment flowing into this market with total cloud infrastructure services spending reaching $191.7 billion in 2021; and that is only one segment of many.
While the industry still has a long way to go before it maximizes its potential, the adoption of AI in the US grew 33% since 2018 and reached 81% in total adoption for 2021.
As for global adoption, North America dominates the market and accounts for over 42.0% in 2021, but the Asian-Pacific is a close second, and China is expected to account for 26.1% of the global market share by 2030.
The top players in this industry include Amazon (AMZN), Alphabet Inc. (GOOG), Microsoft (MSFT), Nvidia (NVDA), Baidu (BIDU), etc.
Three Reasons Why we are Bullish on A.I. Stocks in 2022
🌱 Heightened Demand from Healthcare led to a 150% Surge in AI Market Growth during 2020.
🤖 52% of telecommunications organizations utilize chatbots to increase their overall productivity; recently it was proven that an AI chatbot named TOBi improved client experience by 68%.
🧠 Data suggests that AI has the potential to boost employee productivity by approximately 40% by 2035.
Three Risks to consider when Investing in A.I. Stocks in 2022
📭 A global semiconductor shortage is limiting production, in the near term and is expected to improve by the end of the year; car manufacturers reduced production by 40% due to the shortage.
👿 With so much unknown about the future of A.I., ethics are a top priority with instances of privacy violations, discrimination, accidents, and the manipulation of political systems causing major concerns.
💸 Due to the complexity of their systems, A.I. technology is very expensive to build and maintain, especially if the business lacks in-house skills and must outsource from other businesses.
How to Find hidden gems in the Small Cap Market
The Edge Investment strategy is guided by four overarching principles that we use for all of our investment decisions.
To learn more, check out our recent newsletter explaining our investment philosophy:
Without further adieu, here are our favorite A.I. small caps that compete in a variety of markets within the revolutionary space.
1. Qudian (QD)
Qudian Inc. (NYSE: QD) is a leading technology platform empowering the enhancement of the online consumer finance experience in China.
They use big data-enabled technologies, such as artificial intelligence and machine learning, to transform the traditional process into something powerful and easy to use for customers.
💰 Market Cap: $378.71 million USD
💲 Price: $1.50 USD
🎭 YTD Change: +54.80%
⭐️ CEO: Min Luo
2. Magic Software Enterprises (MGIC)
Magic Software Enterprises Ltd. (NASDAQ: MGIC) offers centralized integration platforms that allow you to quickly connect your SaaS enterprise applications and automate business processes.
They provide proprietary application development, business process integration, vertical software solutions, and information technologies (IT) outsourcing software services in Israel and internationally.
💰 Market Cap: $964.68 million USD
💲 Price: $19.65 USD
🎭 YTD Change: -6.12%
⭐️ CEO: Guy Bernstein
3. Netlist (NLST)
Netlist, Inc. (OTC: NLST) creates solutions that accelerate turning raw data into business insight.
They design, manufacture, and market memory subsystems for computer servers, high-performance computing, and communications markets in the United States and internationally.
💰 Market Cap: $759.28million USD
💲 Price: $3.28 USD
🎭 YTD Change: -49.15%
⭐️ CEO: Chun Ki Hong
4. Mitek Systems (MITK)
Mitek Systems, Inc. (NASDAQ: MITK) develops, markets, and sells mobile image capture and digital identity verification solutions in the United States, Europe, Latin America, and internationally.
The company’s solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences.
💰 Market Cap: $431.05 million USD
💲 Price: $9.72
🎭 YTD Change: -45.24%
⭐️ CEO: Scipio Maximus Carnecchia
5. Digi International (DGII)
Digi International Inc. (NASDAQ: DGII) provides business and mission-critical Internet of Things (IoT) products, services, and solutions in the United States and internationally.
Since 1985, Digi has been a pioneer in wireless communication, forging the future for connected devices and responding to the needs of the people and enterprises that use them.
💰 Market Cap: $942.73 million USD
💲 Price: $26.87 USD
🎭 YTD Change: -9.36%
⭐️ CEO: Ronald Konezny
If you enjoyed this newsletter, please subscribe & tune in for our next newsletter where we provide an in-depth analysis of the best 1-2 stocks listed above.
This newsletter is written by Kevan Matheson, Founder & CEO of Edge Investments.
Prior to starting Edge, Kevan was an Institutional Analyst at RBC Global Asset Management, one of North America’s largest fund managers, with assets under management in excess of $400 billion.
After spending the majority of his career focused on large market capitalization public companies, Kevan became attracted to the risk/reward proposition of growth stocks and cryptocurrency.
In 2017 Kevan published a book on investing in cryptocurrency, where he speculated on the coming growth in NFTs and the underlying tokens that power their ecosystems.
Known in the growth stock community as Small Cap Kev, his current passion is finding stocks in disruptive industries like blockchain, psychedelic medicine, plant-based meat alternatives & much more.
Follow Small Cap Kev & his team on Instagram, TikTok, YouTube, and LinkedIn.
This article was written in collaboration with Edge Investments’ analyst & writer, Declan O’Flaherty
Declan holds a Bachelor of Commerce from the University of Alberta and has over 2 years of experience investing in financial markets.
As a value investor, Declan embraces the lessons of Warren Buffett and his disciples when making investing decisions. With an emphasis on business fundamentals, his strategy focuses on finding stocks with excellent management, a competitive advantage, and those that are selling at discount to their real value.