Omor Ibne Ehsan
·4 min read
Nvidia’s (NASDAQ:NVDA) recent AI conference showcased some impressive new technology, including the company’s expensive new AI chip that purportedly outperforms all other AI chips on the market. However, the hype did not translate into a meaningful stock price increase, as many investors believe the company’s growth potential is already priced into its lofty market capitalization. This highlights a broader trend in the market, where many big-name tech stocks appear to be fully valued, and unlikely to deliver outsized returns from current levels.
On the flip side, many under-the-radar AI stocks are trading at bargain-basem*nt valuations and seem primed for major breakouts as these businesses continue to execute. I think it pays to take a deeper look at these unsung heroes before the rest of Wall Street takes notice and bids up their share prices. In particular, certain AI stocks look poised to generate market-crushing returns in the years ahead if Wall Street rotates out of its fixation with the “Magnificent 7.”
Lantronix (LTRX)
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Lantronix (NASDAQ:LTRX) is an intriguing software-as-a-service and IT company that I believe is an excellent long-term investment given its bargain valuation metrics. Currently trading at just 9-times forward earnings and 0.9-times forward sales, LTRX stock is significantly undervalued compared to software industry averages. Beyond its cheap valuation, what excites me most about Lantronix is that it is also an emerging AI company.
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The company has already worked with customers to deploy “AI and machine learning solutions spanning computer vision analysis, object detection and tracking.” These include “facial recognition, handwritten digit recognition, and 3D image generation.” Finding a profitable SaaS startup with proven AI capabilities and stellar growth prospects is rare – yet that is exactly what Latronix offers investors.
Expected to grow its earnings per shareby 72% and revenue by 22% in 2024, Latronix has growth metrics that seem poised to attract increased Wall Street interest over time. With $22 million in cash against only $29 million in debt, the company also boasts a solid balance sheet. When you combine consistent profitability, impressive growth forecasts, and a strong financial position, it leads me to believe Lantronix has significant upside ahead both as a stand-alone company or as an acquisition target.
Research Solutions (RSSS)
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Although Research Solutions (NASDAQ:RSSS) has experienced volatility in recent years, I believe its long-term investment case remains compelling given its niche position and reasonable growth outlook. The company provides cloud-based research platforms and published scientific, technical, and medical content, operating within a specialized niche with plenty of room for sustained growth.
Having gained nearly 70% from its 5-year trough, RSSS stock appears to be regaining positive momentum after rallying in tandem with the broader market since mid-2023. If this renewed optimism continues, I believe this stock has the potential to reach new all-time highs in the years ahead. With 18.3% revenue growth beating estimates by 5.3% in Q4, the company’s execution has improved notably.
Although Research Solutions did post a small $53,000 net loss last quarter, analysts expect earnigns of 6 cents per share in the current fiscal year and 8 cents per share in 2025. Combined with the company’s projected 15% annual top-line growth, I believe the market is under-appreciating Research Solution’s potential. With no debt and trading at just 1.2-times forward sales, the stock seems primed for multiple expansion if execution continues as is.
Decisionpoint Systems (DPSI)
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Decisionpoint Systems (NYSEMKT:DPSI) specializes in data-driven business optimization. With a client base comprising primarily Fortune 500 companies, Decisionpoint already maintains an impressive roster of high-profile customers.
The company analyzes business data using “AI and machine learning” (as most SaaS companies do, or at least claim to). I expect Decisionpoint to continue attracting major corporate clients hungry for enhanced operational insights. Although the company did miss Q2 revenue expectations slightly, the stock’s modest valuation at 20-times earnings and 0.6-times forward sales seems to limit its downside risk.
With projections calling for 15% revenue growth in 2024 and an array of essential offerings that should only increase in strategic value, I believe DPSI stock can provide substantial gains for shareholders over the long-run. On a year-to-date basis, DPSI stock is up 40%. I think there’s more capital appreciation where that came from.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.
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