Why Innodata Stock Lost 23% in November

Shares of Innodata (NASDAQ: INOD), an AI stock focused on data-labeling, were pulling back last month as the stock reacted to concerns about the AI bubble bursting and an underwhelming earnings report.

As a result, the stock finished the month down 23%, according to data from S&P Global Market Intelligence. As you can see from the chart below, most of the stock's losses came in the first half of the month, which included its earnings report.

INOD data by YCharts

What's happening with Innodata?

Small-cap AI stocks have been relatively hard to find in a tech boom dominated by names like Nvidia and Alphabet, but Innodata is an exception. It provides data annotation and related services that help companies turn data into useful AI-ready assets.

That formula had driven strong growth in the business, but Innodata took a breather in the third quarter. Revenue rose just 20% to $62.6 million, though that still topped the consensus at $59.8 million. That was also a notable step down from growth roughly doubling in the first half of the year.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 17% to $16.2 million, and generally accepted accounting principles (GAAP) net income was $8.3 million, or $0.24 per share.

CEO Jack Abuhoff touted advances in pre-training data, in which the company signed contracts that could be worth $42 million, and it launched a Federal Practice to serve the federal government.

In its guidance, the company reiterated its full-year revenue forecast of 45% or more in year-over-year organic revenue growth, though that assumes a more modest growth rate in the fourth quarter, implying at least 17% revenue growth in the quarter.

The stock rose 7% on the news, briefly bucking the downward trend in the stock during the month.

However, it resumed that slide soon after due to a broader sell-off in AI stocks. Though Innodata is profitable, its small size makes it more at risk than more established AI stocks, meaning it's more likely to swing with market sentiment.

Image source: Getty Images.

What's next for Innodata

Innodata's revenue recognition can be lumpy depending on the size and timing of its contracts, like other software companies, and it's unclear if the company will be able to return to its previous levels of revenue growth.

Even with that uncertainty, getting some exposure to Innodata isn't unreasonable for investors who are bullish on AI. At a market cap of less than $2 billion, there's a lot of upside potential for the stock if it can deliver strong revenue growth.

Jeremy Bowman has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.