Innodata, a small-cap IT solutions provider that uses its large language models (LLMs) to train other companies’ AI, is like “Palantir in its early days,” according to Zacks. Today, Palantir is a leader in the AI sector with a market capitalization of more than $141.5 billion. Zacks strongly recommends buying Innodata stock, which has soared 3,400% over the last five years.
Details
“For investors looking to get exposure to some up-and-coming AI names and maybe find the next Palantir, I recommend keeping an eye on Innodata,” Ethan Feller, a Zacks analyst, wrote in a research report on Innodata.
He explains that Innodata plays a vital role in advancing AI by providing services to power AI and machine learning applications for other players. The company is developing LLMs for training other companies’ AI, with its client list reportedly including five of the Magnificent Seven companies, such as Google, Amazon, and Microsoft. Innodata stock has gained more than 470% since the beginning of 2024 and 3,400% over the last five years.
Feller draws parallels between Innodata and Palantir, which has been a massive AI beneficiary. Palantir provides AI solutions for businesses and the defense industry to process data, among other things. Its clients include mining giant Rio Tinto. Palantir plans to transfer its stock listing from the New York Stock Exchange to Nasdaq on November 26 and join the Nasdaq-100 index, which comprises the exchange’s largest stocks. Since its NYSE debut on September 30, 2020, Palantir stock has gained more than 575%.
About Innodata
Founded in 1988, Innodata was initially focused on data digitization: scanning printed documents, digitizing images and medical records, and recording data on floppy disks and CDs before sending it to clients. With the advent of e-books, it began converting print books into digital formats. However, as market conditions deteriorated, Innodata, which had accumulated an enormous amount of data over its history, decided to use it to train AI models for other companies.
Zacks’ Feller believes that one of Innodata’s strengths lies in its strong partnerships, particularly with the Magnificent Seven. In the third quarter, Innodata won a contract with a “prominent social media company” (its name was not disclosed). The company also demonstrates strong financial performance, Feller adds. For instance, in the third quarter, revenue surged a record 135.5% year over year to $52.2 million, while net income skyrocketed to $17.4 million, 43 times the amount in the previous-year period.
As an AI pioneer, Innodata has been at the forefront of research in this field for many years, which has given it a deep understanding of the industry’s evolving needs, Feller concludes.
Still, not everyone agrees with this rosy view of the company. In 2024, a group of Innodata investors filed a lawsuit in the U.S. District Court for the District of New Jersey against the company and several of its top executives. They claim that Innodata misleads investors, alleging that AI model data entry is performed not by algorithms but by people in low-wage countries.
Analyst insights
According to MarketWatch, the three analysts covering Innodata recommend buying the stock. Their average target price is $46.33 per share, implying 4% upside versus the last close on Wednesday, November 20.
