Innodata to Become Future AI Solutions Leader: Buy Now and Hold

Innodata Inc. INOD is a small-cap global data engineering company operating in the United States, the United Kingdom, the Netherlands, Canada, and internationally. It is focused on providing generative artificial intelligence (AI) solutions and innovation. The stock price of INOD soared in 2024 and has maintained momentum year to date. Yet, this company has exceptional value that can be unlocked over the long term, which makes the stock lucrative despite its current highly overstretched valuation. Innodata currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The chart below shows the price performance of INOD in the past year.Image Source: Zacks Investment ResearchRobust Business ModelInnodata operates through three segments: Digital Data Solutions (“DDS”), Synodex and Agility. The DDS segment of INOD provides AI data preparation services, collects or creates training data, annotates training data and trains AI algorithms for its customers. It is also engaged in AI model deployment and integration services.DDS also provides a range of data engineering support services, including data transformation, data curation, data hygiene, data consolidation, data extraction, data compliance, and master data management.Strong Q4 and 2024 Earnings ResultsInnodata came out with quarterly adjusted earnings of 31 cents per share, beating the Zacks Consensus Estimate of 22 cents per share. The reported figure compared favorably with earnings of 5 cents per share a year ago. The company posted quarterly revenues of $59.18 million, surpassing the Zacks Consensus Estimate by 11.41%. This compares favorably with year-ago revenues of $26.11 million. INOD’s full-year 2024 revenues of $170.5 million were up 96% year over year. Moreover, its 2024 adjusted EBITDA of $34.6 million reflected a 250% increase year over year. The company ended 2024 with $46.9 million in cash, significantly up from $13.8 million at the end of 2023. It has an undrawn $30 million credit facility.INOD to Benefit From Massive AI Spending WaveINOD is focused on supporting big tech companies in developing generative AI models. Four of the “Magnificent 7” stocks, namely, Meta Platforms Inc. META, Microsoft Corp. MSFT, Alphabet Inc. GOOGL and Amazon.com Inc. AMZN, have decided to invest a massive $325 billion in 2025 as capital expenditure for AI-infrastructure development. This marks a significant 46% year-over-year increase in capital spending for AI space.Innodata has established itself as a crucial partner in this AI revolution by providing the high-quality data needed to train advanced language models. INOD is expected to benefit from massive demand for supplying state-of-the-art data engineering to large language model building and maintenance over the long-term. INOD’s football-to-dime analogy effectively illustrates the vast untapped potential in AI data — if all possible human knowledge that could be captured as data represents a football, today's best AI models have only trained on data equivalent to the size of a dime.Expansion Through a Diversified Clientele The long-term growth of Innodata’s business model is set to be backed by big techs, other big enterprises, industry-specific demand, federal agencies, public relations and healthcare. One of the most promising aspects of INOD’s strategy is its successful customer diversification efforts. While INOD expanded its relationship with its largest customer to approximately $135 million in annualized run rate revenues (including $24 million in new awards during the fourth quarter and January), it was the growth among other tech clients that was important.Revenues from Innodata's seven other Big Tech customers jumped an impressive 159% sequentially. This diversification reduces concentration risk while validating the company's land-and-expand strategy. Several ongoing pilots with these customers hold potential for "seven or even eight-figure revenue opportunities," according to management.Impressive Guidance for 2025For 2025, Innodata has guided at least 40% revenue growth, a projection that may prove conservative given the company's pattern of upward revisions throughout 2024. INOD plans to reinvest a portion of operating cash flow into hiring key talent, technology expansion, product development, and sales capabilities while still growing adjusted EBITDA compared to 2024. Management is optimistic about the future leveraging its strength in the generative AI services space.  Solid Estimate Revisions of INOD StockInnodata has an expected revenue growth rate of 47.3% for the current year while earnings are expected to decline 2.3%. The Zacks Consensus Estimate for current-year earnings has improved 6.1% in the past seven days.It has an expected revenue and earnings growth rate of 20.2% and 44.3%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has remained the same in the past seven days.Image Source: Zacks Investment ResearchValue to be Unlocked Over the Long Term for INOD Shares Innodata represents a rare opportunity to invest in a company with proven execution and substantial unrealized potential in the AI revolution. With its exceptional financial results, strategic positioning as a key enabler of AI advancement, successful customer diversification and robust growth forecast, INOD remains a compelling buy, even after its meteoric rise.For investors seeking exposure to the AI boom with a company that has already demonstrated its ability to capture significant market share, Innodata stands out as an attractive option in 2025 and beyond.Innodata has a return on equity of 66.36% compared with 11.78% of the industry and 17.10% of the S&P 500 Index. The company has a net margin of 16.81% compared with 6.6% of the industry and 12.7% of the S&P 500.INOD currently has a forward P/E of 68.45X for the current financial year, compared with 18% of the industry and 18.77X of the S&P 500. However, this premium is easily justified by Innodata’s extraordinary growth rate, improving margins, and strategic positioning in a market experiencing exponential expansion.Image Source: Zacks Investment ResearchZacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report Innodata Inc. (INOD): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis Report Meta Platforms, Inc. (META): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks