INOD & BBAI: The Under-the-Radar AI Stocks with 10X Potential

Innodata (INOD) reported second-quarter revenue of $92.1 million, up 58% year-over-year, with adjusted earnings up 92%. The company, which historically provided data labeling and preparation services for large language models, is now transitioning to a self-serve software platform. It closed its first engagement on the new platform and has 15 companies evaluating it, plus talks with two hyperscalers about reselling access. However, one customer still accounted for 37% of revenue, down from 56% the prior quarter, and the stock remains more than 45% below its 52-week high near $125.

BigBear.ai (BBAI) secured a 10-year contract with the U.S. Air Force worth up to $900 million in April. The contract is an indefinite delivery, indefinite quantity (IDIQ) agreement, which pre-qualifies BigBear.ai to bid on task orders without new competitions. The company also acquired generative AI platform Ask Sage last year and expanded its capabilities for Department of Defense missions in July. Despite these wins, BBAI trades near its 52-week low of $2.60, down from a high above $9, and remains deeply unprofitable.

Both companies are small and volatile, with bottom lines hovering between unprofitable and barely profitable. They are not guaranteed to succeed, but their recent results suggest AI spending is reaching beyond chipmakers into supporting businesses.

The article argues that while these stocks are speculative and should not be core holdings, they offer more room to run than megacap AI stocks that have already experienced massive run-ups. The market may not have fully priced in their recent progress, creating potential opportunities for risk-tolerant investors.

The AI investment narrative has been dominated by trillion-dollar companies like Nvidia, Microsoft, and Google. However, as AI adoption matures, spending is cascading to smaller enablers like Innodata and BigBear.ai. These companies provide critical data services and analytics that support AI models, and their recent contract wins and platform transitions could signal a new phase of growth.

For Innodata, the shift from a services business to a software platform is significant. Platform businesses typically enjoy higher margins, recurring revenue, and greater scalability. If Innodata can successfully scale its self-serve platform and reduce customer concentration, its earnings could accelerate, potentially justifying a higher valuation. The stock's 45% decline from highs suggests the market is skeptical, but record financials and platform traction could reverse sentiment.

BigBear.ai's Air Force contract provides a decade-long runway for task orders. While the $900 million ceiling is not guaranteed revenue, it positions BigBear.ai as a pre-qualified vendor for AI work across the Air Force. The growing backlog and expansion of Ask Sage for defense missions indicate that the company is gaining traction in national security AI, a sector with increasing budgets. If BigBear.ai can convert pipeline into cash and improve profitability, the stock could re-rate significantly.

Both stocks are high-risk, high-reward. They could 10x if execution is flawless, but they could also falter due to customer loss, contract delays, or continued unprofitability. For investors with a high risk tolerance, they offer exposure to AI's next wave without the premium valuations of megacaps.