Why Innodata Stock Skyrocketed 149% in May
Key Points
In a big month for AI stocks, Innodata was one of the biggest winners.
The data-labeling specialist signed up a big tech company for a large contract in the quarter.
With a market cap of less than $4 billion, the stock has a lot of upside potential.
- 10 stocks we like better than Innodata ›
Innodata (NASDAQ: INOD) was one of several AI stocks to soar last month as the data-labeling specialist nearly doubled following its first-quarter earnings report early in the month, and the stock added on some gains from there.
Sentiment toward AI stocks has shifted dramatically from six months ago, when fears of a bubble were weighing on the sector. With bottlenecks now abounding, investors seem to think that a small-cap AI services stock like Innodata.
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According to data from S&P Global Market Intelligence, the stock finished the month up 149%. As you can see from the chart below, it shot up following the first-quarter earnings report and tacked on more gains at the end of the month.
Image source: Getty Images.
What happened with Innodata
Innodata said revenue rose 54% to $90.1 million, easily beating estimates at $76 million. The company also showed off strong margin expansion with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumping 96% to $25 million, or 28% of revenue, with generally accepted accounting principles (GAAP) earnings per share jumping from $0.22 to $0.42, ahead of the consensus at $0.19.
The company also said it signed a number of new engagements with a big tech company that would generate $51 million in revenue this year. Innodata didn't name the company, but said it had no revenue from that customer a year ago, and now expects it to be its second-largest customer this year. That shows the company's growth potential.
Innodata stock jumped 86% on May 8 and soared the next day, showing that the stock has massive upside potential if it can deliver growth.
Over the rest of the month, there was no company-specific news out on Innodata, but the broader tailwinds in AI lifted the stock as investors responded to bullish commentary from the chip sector and strong quarterly results in tech.
What's next for Innodata
Innodata raised its guidance for the year, calling for revenue growth of at least 40% for the year, up from a previous target of at least 35%. Management also said, "There are several potentially large programs we have not yet included in our forecast."
Innodata isn't cheap at a price-to-earnings ratio close to 100, but for an AI stock with a market cap of less than $4 billion, the upside potential is worth paying up for.
If the AI boom continues, Innodata looks like a good bet to be a winner.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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