AI stocks have exploded to the upside in recent months. It isn’t too far-fetched to say that many of them are sitting at highly overbought territories and overdue for a correction.
On the other hand, smaller AI companies have been overlooked by Wall Street. They play a key role in the AI puzzle, whether semiconductors or AI software. If and when the AI rally does continue, it could spill over into these under-the-radar AI stocks. Let’s look at the following three candidates.
Terran Orbital (LLAP)
Terran Orbital (NYSE:LLAP) is a leading manufacturer of small satellites that provide a range of services including communications, imaging, navigation, and intelligence.
The company uses AI to design, build, and operate its satellites, as well as to analyze the collected data. Terran Orbital’s AI-powered platform enables it to deliver customized solutions for its customers, which include the U.S. government, NASA, and commercial entities.
However, Terran Orbital is a risky bet. Although small, it operates in a highly competitive and capital-intensive industry. The company also went public through a SPAC merger last year, which added some uncertainty to its valuation. But with its price down 88% from its peak, I believe all the caveats here are likely priced in.
In addition, Terran Orbital has significant potential. It’s well-positioned to benefit from the growing demand for small satellites and the increasing adoption of AI in space. Analysts expect it to grow its revenue by 170% year over year in 2023, reaching positive earnings per share by 2025. If it can meet these expectations, Terran Orbital could skyrocket higher. Analysts also have a consensus price target of $6 for the stock, which implies a whopping 328% upside from its current price of $1.36.
Lasertec (LSRCY)
The Japanese company Lasertec (OTCMKTS:LSRCY) provides inspection and measurement solutions for the semiconductor industry. The company’s products are essential for ensuring the quality and performance of chips, especially those made with advanced technologies such as extreme ultraviolet lithography (EUV). Lasertec is the only company in the world that can produce machines that can inspect blank EUV masks for defects, which gives it a unique competitive edge.
Thus, Lasertec is a key player in the AI puzzle. It enables chipmakers to produce faster, smaller, and more powerful chips that can then power AI applications. The company has been growing rapidly as it benefits from the strong semiconductor demand amid the global chip shortage.
In its latest quarter, Lasertec reported a 46.25% increase in revenue and a 118.5% surge in net income. Analysts expect the company to grow its revenue by 66% in 2023 and by 48.2% in 2024. For a company of high margins and profitability, this translates into excellent earnings growth in coming years. Lasertec’s stock trades at $29.5 per share, which is still reasonable, given its growth potential.
SentinelOne (S)
SentinelOne (NYSE:S) is a cybersecurity company that offers an endpoint protection platform that uses AI to prevent, detect, and respond to cyber threats.
The company’s platform leverages machine learning and behavioral analysis to identify and block malicious activities across endpoints, cloud workloads, and IoT devices. SentinelOne also provides threat intelligence, hunting capabilities, automated remediation, and recovery tools.
SentinelOne may not seem like an obvious AI stock on the surface. However, SentinelOne has been integrating AI technology into its cybersecurity products, gaining popularity among customers. The company claims over 10,000 customers across various industries and regions, including Fortune 500 companies.
In my opinion, the stock seems underrated, as it is expected to have a 41% year-over-year revenue growth rate in 2023 and keep that metric near 32% for the next two years. It’s also projected to deliver profits by 2025. With that in mind, the current price looks like a bargain.
On the date of publication, Omor Ibne Ehsan did not have (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.com Publishing Guidelines.