Why Shares of Innodata Were Moving Higher This Week

Shares of Innodata (NASDAQ: INOD), a fast-growing AI stock, were moving higher this week, seemingly on speculation that the company could benefit from Meta Platforms' deal with Scale AI, a competitor to Innodata.

Some of Scale AI's customers are reconsidering working with it now that Meta is acquiring a 49% stake in the company, which could open up an opportunity for Innodata, a rival data labeling company, meaning it helps categorize and prepare data for AI models.

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In a week when a number of AI stocks were moving higher, Innodata was also a winner, as the stock was up 18.2% for the week, according to S&P Global Market Intelligence.

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Innodata gets some attention

Trading volume has risen for Innodata since earlier this month when Wedbush analyst Dan Ives included the stock in his new Dan Ives AI Revolution ETF.

Last week, the stock moved lower in response to Meta's deal with Scale AI, as investors seemed to bet that the deal would give its competitor, Scale AI, an edge. However, that thinking seemed to reverse itself this week in response to talk that Alphabet, Scale AI's biggest customer, could be looking for a new data labeling provider.

Scale AI is much bigger than Innodata, meaning any customers that leave it could present a big opportunity for Innodata if it can grab that market share.

An under-the-radar AI opportunity

The AI boom has been dominated by large-cap stocks like the "Magnificent Seven," but Innodata shows that there are small-cap stocks capitalizing on the opportunity as well.

Innodata is growing quickly with 120% organic revenue growth in the first quarter, and the stock trades at a reasonable valuation. For investors looking for lesser-known AI stock, Innodata is worth a closer look.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.