Here's Why You Shouldn't Chase Innodata's 26% Drop
Key Points
Reports about Innodata laying off roughly 550 workers due to a reduction of assignments have caused the stock to plunge.
Innodata can provide clarity when it reports earnings on Nov. 5, but full-year guidance implied a significant deceleration in revenue growth for the rest of the year.
Investors can choose from many AI stocks, and people who have Innodata on their radars likely know of better picks.
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Innodata (NASDAQ: INOD) has been volatile throughout the year, but reports of more than 550 layoffs in India and the Philippines are a red flag.
While tech giants have been laying off workers due to rising AI costs, that's not why Innodata laid off workers. Reports claim that the termination notice included language about a reduction in business assignments, with layoffs unrelated to individual performance.
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Why was there less work?
That's the big question. Are hyperscalers going in-house, working with Innodata's competitors, or is another explanation warranted? There were some hints to this in Innodata's Q2 earnings that suddenly appear more obvious.
On the surface, Innodata reported solid Q2 results. Revenue was up by 58% year over year, and net income doubled. However, Innodata suggested full-year revenue growth of just 40% year over year when giving guidance.
That was a little odd, since Q1 revenue was up by 54% year over year. That makes the full-year guidance relatively conservative and implies a decelerating growth rate in future quarters.
It may also just be a slow quarter. Innodata had only 20% year-over-year revenue growth in Q3 2025 and is due to report Q3 2026 results on Nov. 5. It's possible the work slowdown is specifically connected to Q3, but investors will have to wait for guidance.
Investors can choose from many AI stocks
AI stocks like Innodata don't receive as much mainstream media attention. These investments aren't as well-known as Nvidia and Micron Technology (NASDAQ: MU).
Investors have to dig deep into AI stock analysis to find and understand companies like Innodata. That also suggests that they know a bunch of other AI stocks. Other AI stocks are posting more exciting guidance while gaining market share at a faster rate.
In other words, there are better opportunities available than Innodata that don't carry the same risk. Earlier this year, Micron officially broke ground for a $100 billion facility in central New York to produce more memory chips. With that level of demand and capital floating around, companies shouldn't be laying off workers due to reduced assignments.
Furthermore, the entire AI stock trade has been reeling in recent weeks. Practically every stock in that industry is a buy-the-dip candidate at current levels, not just Innodata. The 26% drop also came on a day when many AI stocks rallied, making this dip even more pronounced.
Innodata can still surprise investors when it reports earnings in Q3. It can offer clarity on the report circulating about the recent layoffs. However, the upside doesn't appear compelling compared with other growth stocks in the AI industry.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Innodata, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.
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