Stocks to buy

3 Low-Risk, High-Reward AI Stocks to Buy for 6,200% Gains

AI stocks have cooled off significantly over the past few weeks due to bearish macroeconomic reports. GDP growth came in slower than expected, and inflation data came in slightly hotter than expected. Thus, I do think that you should consider shifting a lot of your growth gains into defensive stocks and other dividend stocks that can withstand a correction if the market dives again.

However, you should also consider having a small portion of your portfolio into some under-the-radar AI growth plays listed here. These AI stocks could deliver multibagger returns in the coming quarters if the stock market rally restarts after its recent pause. Many AI stocks have corrected significantly, so I believe the risk-reward ratio with many of these stocks is more in your favor right now.

The long-term growth story for AI remains intact. AI adoption is accelerating, so it might be a good time to buy some AI stocks on the cheap as sentiment eventually turns positive again. Here are three AI stocks to consider right now.

Data Storage Corp (DTST)

a stock image of a person working on data charts using a futuristic computer.

Source: Shutterstock

I have written about Data Storage Corp (NASDAQ:DTST) many times, and this stock is still up since my first buy rating, despite its recent plunge. The stock is down 27% from its peak price of $7 per share, but I believe it is only a matter of time until it climbs back to that level again. There are not many data pure-plays you can invest in right now. Data Storage Corp is one of the only such stocks you can get your hands, on as Big Tech has a near monopoly on the data center space. Despite being a very small company and having a lot of competition in this segment, the company has delivered good growth over the years and is nearly profitable.

Segment-wise, CloudFirst is already highly profitable. This business unit generated $13.5 million in revenue, with net income of around $2.6 million and adjusted EBITDA of $3.8 million, translating to a healthy 28% EBITDA margin. Meanwhile, the company’s Flagship segment brought in $10.4 million in revenue. While not as profitable as CloudFirst, this segment still managed to eke out a modest net income of approximately $28,000 and an adjusted EBITDA of over $400,000. This marked a significant $1.8 million improvement compared to the $1.3 million loss posted in the prior year for the Flagship segment.

With strong contract renewal rates and improving financials, I believe DTST stock can climb back to its former highs once the market turmoil subsides. This overlooked data play still has plenty of upside in my view.

Applied Digital (APLD)

Crypto mining machines

Applied Digital (NASDAQ:APLD) was actually Applied Blockchain not too long ago. If you look up what the company is, you will most likely get the description of a company that is an AI and data center play, but that is not the full story right now. This company still has heavy exposure to crypto, despite the company’s management team turning the ship away from the blockchain and toward becoming a data center company. Applied Digital mostly rents out its data centers to crypto miners and AI companies.

Its AI pivot is very much real and its Sai Computing brand provides cloud services for AI applications, with a number of contracts already secured. Applied Digital has also expanded its high-performance computing (HPC) hosting capacity. Moreover, while many investors may be uneasy with its crypto exposure, I think it actually acts as a tailwind post-halving, since crypto miners are aggressively expanding their fleets and are likely to bring even more business in.

Analysts expect revenue to rise from $150 million in 2024 to $505 million in 2026. While not a pure-play AI stock, I believe APLD stock can ride both the AI and crypto waves to new highs in short order.

Rekor Systems (REKR)

An image of an autonomous smart car driving, sensing other vehicles in the road

Source: Andrey Suslov/Shutterstock

This company provides hardware and software for self-driving vehicles. The recent EV downturn has caused most EV-related stocks to take a dive, and Rekor (NASDAQ:REKR) is one of the unlucky companies with heavy exposure to the EV industry. The stock has declined substantially, but is still up over 55% over the past year. The near-term bleeding could continue, but I believe Rekor is a good long-term bet right now.

Rekor Systems is expected to grow revenue by 89% in 2024 to $66 million along with losses narrowing substantially. Regardless, I would note that this is a very high-risk, high-reward bet. The company could face liquidity issues as it only has $15.3 million in cash. Gurufocus also thinks it could be a value trap.

Dilution is also a lingering problem since outstanding shares have been increasing by 25-30% year-over-year and a liquidity crunch could accelerate that. Still, if the EV industry bounces back once rate cuts take effect, I think the stock could trade at significantly higher levels.

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.com Publishing 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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