Bank of America is bullish on these 4 under-the-radar AI stocks
AI mentions on earnings calls have increased, especially among Russell 2000 companies.
The bank shared four buy-rated AI stock picks that go beyond the Magnificent Seven.
The Magnificent Seven and the AI trade have become synonymous, but there are opportunities for investors to get exposure to the AI mega-trend outside of the biggest names in the market.
Small and mid-cap companies are adopting AI technology to drive earnings growth, according to Bank of America analysts. As the AI trade progresses, the next wave of beneficiaries will be companies that adopt AI into their product offerings and revenue models.
While AI infrastructure companies like Nvidia benefit from size and scale, more small-cap companies are participating in the next leg of the AI trade.
Jill Carey Hall, equity and quant strategist at Bank of America, wrote in a recent report that earnings calls of Russell 2000 companies have mentioned AI more frequently over the last few quarters.
Software companies are particularly well-positioned to take advantage of the nascent trend of agentic AI, or AI systems that operate autonomously with limited human supervision, according to the bank.
Senior technology research analyst Brad Sills reported increased signs of "green shoots" in the development of agentic application adoption at the bank's Global Technology Conference earlier this month. Examples include increased database activity to handle running AI applications and more AI-focused code.
Small-cap companies in particular present AI opportunity for active stock pickers. While the overall category has lagged behind its large-cap counterpart, the current backdrop allows investors to buy up promising high-growth companies at a discounted price. Additionally, Hall sees the potential for easing inflation and a pick-up in M&A transaction volume to provide a boost to small-cap technology valuations.
Below are Bank of America's four top buy-rated small and mid-cap AI picks, along with their 12-month price targets and relevant analyst commentary.
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