Bank of America is bullish on these 4 under-the-radar AI stocks
These stocks present a promising opportunity for investors seeking to diversify their AI portfolio. It's essential to conduct thorough research and due diligence before making any investment decisions. Monitoring market trends and company performance can help in assessing the potential growth of these stocks. Keeping a close eye on industry developments and technological advancements can also provide valuable insights for investing in the AI sector. Diversifying investments across multiple AI stocks can help mitigate risks and maximize potential returns.
Bank of America is bullish on a handful of under-the-radar names set to benefit from the AI boom. According to the bank, small and mid-cap companies are adopting AI technology to drive earnings growth. As AI infrastructure companies like Nvidia benefit from size and scale, more small-cap companies are participating in the next leg of the AI trade.
AI Opportunities in Small and Mid-Cap Stocks
Bank of America analysts have observed an increase in AI mentions on earnings calls, especially among Russell 2000 companies. The bank shared four buy-rated AI stock picks that go beyond the well-known Magnificent Seven companies.
Software companies are particularly well-positioned to take advantage of the trend of agentic AI, with AI systems operating autonomously. Small-cap companies present opportunities for active stock pickers as they are adopting AI technology into their product offerings and revenue models.
While the overall small-cap category has lagged behind large-caps, the current backdrop provides investors with the chance to invest in promising high-growth companies at a discounted price. Additionally, easing inflation and a potential increase in M&A transaction volume could boost small-cap technology valuations.
Bank of America's Top Small and Mid-Cap AI Picks
- Datadog
Ticker: DDOG
Market Cap: $42.1 billion
Price Target: $138
Company Description: Datadog provides cloud-based tools for monitoring application performance and infrastructure in real time. - Seagate Technology
Ticker: STX
Market Cap: $27.8 billion
Price Target: $135
Company Description: Seagate designs and manufactures data storage products for consumer and enterprise use. - Kyndryl Holdings
Ticker: KD
Market Cap: $9.3 billion
Price Target: $44
Company Description: Kyndryl, spun off from IBM, provides IT services including cloud and data center modernization. - JFrog
Ticker: FROG
Market Cap: $4.8 billion
Price Target: $48
Company Description: JFrog offers a DevOps platform known for its artifact repository manager, Artifactory.
BofA Commentary: "We believe Datadog is a share gainer in the generative AI theme, with the potential for durable revenue growth and attractive free cash flow margins."
BofA Commentary: "Seagate's HAMR ramp is expected to boost margins following the 2023 HDD downcycle."
BofA Commentary: "AI is seen as a net tailwind for the IT services industry, with recent deal signings providing visibility into earnings power."
BofA Commentary: "Increasing usage of the platform is expected as generative AI drives the pace of software development."