The AI market is said to be overheated. Which stocks remain undervalued?

Concerns surrounding AI are primarily related to the scale of investment and its return on investment. According to Bloomberg’s estimates, the largest cloud companies have budgeted more than $700 billion in capital expenditures for this year. Investor Michael Burry doubts that future profits will justify the tech giants’ expenditures. Ray Dalio warns that rising borrowing costs are bringing the AI bubble closer to bursting.

At the same time, some small companies are already profiting from AI, even though their stock prices have fallen significantly. For example, Innodata, a provider of training data for AI models, increased its revenue by 58% in the second quarter and doubled its net profit. Meitu, a developer of AI applications, saw its half-year revenue grow by 22% and its adjusted profit by nearly 40%. Oninvest analyst Aldiyar Anuarbekov examined the extent to which current prices reflect these companies’ prospects and whether it’s possible to find undervalued stocks in a market that’s considered overheated.

Oninvest analyzed 31 small- and mid-cap companies in the AI sector and selected five: a provider of training data for models, an enterprise software developer, and creators of AI applications. The selection process took into account revenue growth, margins, and profitability, as well as stock multiples, the decline from the 52-week high, and the relative strength index (RSI), which reflects the speed and strength of price changes. We’ll examine what underpins these companies’ businesses, how attractive their stock valuations are, and what risks could hinder their recovery.

Innodata prepares data for training and testing AI models. In the second quarter of 2026, the company’s revenue grew 58% year-over-year to $92.1 million, and net income doubled to $14.4 million. The company maintained its forecast for annual revenue growth of at least 40%.

Innodata's two largest customers account for 71% of the company's sales, which limits the benefits of diversification: a reduction in one of these two customers' programs could have a significant impact on the company's results.

Over the past 12 months, the company’s stock price has fallen by nearly 35%. At the current share price of $53, the forward P/E ratio (the ratio of the company’s share price to its projected annual earnings) is approximately 32, based on the consensus forecast for adjusted earnings per share for 2026. According to Maxim Group’s calculations, the company is valued at approximately 24 times its projected adjusted EBITDA for 2027, whereas the analyst considers a multiple of 39 to be fair. At the end of 2025, the valuation stood at about 37 times EBITDA (Maxim Group report).

On August 7, Maxim Group reaffirmed its "buy" recommendation and $111 price target, which implies an increase of approximately 90% from the closing price on October 14.

According to MarketWatch, three analysts who cover the company's stock recommend buying it. The average price target is $123.7, which implies an increase of nearly 133% from the last closing price.

Progress Software develops enterprise software, including solutions for data management and AI implementation. In the third fiscal quarter, the company’s revenue fell 2% to $246 million, but adjusted free cash flow rose 17% to $87.2 million.

At a share price of $38.6, Progress Software’s forward P/E ratio is approximately 6.2. According to Guggenheim’s estimates, the company is also trading at about 2.6 times annual recurring revenue, compared with a fair range of 5.4–6.2, as determined by analysts (the report is available at Oninvest). This is one of the lowest valuations in our selection: it may reflect investors’ concerns about debt and the outlook for traditional software.

The next test for the business is the AI and data division acquired from Domo. According to management, more than 85% of its recurring revenue comes from pay-as-you-go models. This model could mitigate the risk of revenue loss due to a reduction in the number of user licenses when AI agents are deployed. However, the deal is financed with debt: the outcome for shareholders will depend on the integration and debt repayment.

On October 1, an analyst at D.A. Davidson reaffirmed a “buy” rating on the company’s stock and a price target of $55; he estimates potential upside of about 40% from the closing price on October 14. The company’s main risk is related to debt: net debt following the Domo acquisition reached 3.8 times annual EBITDA, the analyst noted. On September 30, Guggenheim reaffirmed its “Buy” rating with a price target of $83—115% above the most recent closing price.

According to MarketWatch, the company's stock has a total of six "Buy" ratings and one "Hold" rating from Wall Street analysts. The average price target is $56.2, which is about 45% higher than the last closing price.

Meitu develops apps for photo and video editing and the creation of visual content using AI. In the first half of the year, revenue rose 22.1% to 2.21 billion yuan (about $330 million), while adjusted net income attributable to shareholders rose 39.5% to 652 million yuan.

The company is expanding its suite of tools for professional use—such as the creation of marketing materials. By June, annualized recurring revenue from this segment had reached approximately 620 million yuan.

At the same time, the gross margin fell to 71.5% from 75.3% due to computing costs. The company attributes this to a shift in its sales mix: newer AI applications, which have higher relative costs for external models, are growing faster, while the share of higher-margin advertising is declining.

Since the beginning of the year, the stock has fallen 46.6%; over the past 12 months, it has fallen 57%. According to JPMorgan’s calculations, Meitu shares are trading at a price-to-earnings ratio of 12 based on projected earnings for 2026 and 2027, while the bank considers a ratio of 15 to be fair, comparable to that of mature app developers (the report is available at the editorial office).

JPMorgan cites the dilution of standard editorial functions and the dilution of shareholders’ stakes upon the conversion of the $250 million in bonds issued for Alibaba as risks. On September 23, JPMorgan initiated coverage of the company with a Neutral rating and a price target of 4.5 Hong Kong dollars—28.5% above the closing price on October 14. On September 3, Jefferies analysts reaffirmed their Buy rating with a price target of 7 Hong Kong dollars.

According to Market Screener, the company's stock has eleven "buy" recommendations from analysts and two "hold" recommendations. The average price target is 6.6 Hong Kong dollars, which is 88.5% higher than the last closing price.

Phancy Group, formerly Beijing Fourth Paradigm, develops enterprise AI platforms and services that provide access to models via application programming interfaces (APIs). In the first half of the year, the company’s revenue grew by 43.4% to 3.77 billion yuan. The API segment saw its sales increase nearly tenfold to 464 million yuan, but it currently accounts for only about 12% of total revenue.

Phancy Group returned to profitability: net income attributable to shareholders of the parent company totaled approximately 119 million yuan, compared with a loss a year earlier. However, the growth in sales has been accompanied by an increase in computing costs: the gross margin fell from 37.7% to 32.8%, and debt rose from 202 million yuan at the end of 2025 to 1.66 billion by the end of June. In April, the company also issued 38.8 million new shares.

According to JPMorgan’s calculations, the forward P/E ratio is approximately 89 based on expected earnings for 2026 and 33 for 2027 (the report is available at Oninvest). This valuation implies significant earnings growth: the attractiveness of the stock depends on whether the company can meet these expectations.

Since the beginning of the year, Phancy Group's stock price has fallen by 50%; over the past 12 months, it has fallen by 60%.

The company is capitalizing on demand from Chinese customers for performance optimization using both Nvidia accelerators and domestic chips, and JPMorgan expects the API segment’s gross margin to approach 30%, and projects adjusted net income for 2028 to be 37% higher than the analyst consensus.

On September 23, JPMorgan initiated coverage of the company’s stock with an “Overweight” rating (a recommendation to buy) and a price target of 50 Hong Kong dollars, implying the potential for the stock to more than double in value. The bank sees capital intensity as the main risk: purchasing and leasing servers could consume cash flow even amid rapid revenue growth.

According to Stock Analysis, the company's stock has seven "buy" recommendations from analysts. The average price target is 51.66 Hong Kong dollars.

Intsig Information developed the CamScanner app and the TextIn enterprise platform for document recognition and processing. The company sells tools that enable AI agents to extract data from invoices and other documents, converting them into structured information.

In the first half of the year, revenue rose 22.3% to 1.03 billion yuan. Overseas sales increased by approximately 41%, and the gross margin was about 87%. However, profit attributable to shareholders rose by only 4.8% to 246.7 million yuan: research expenses rose by nearly 30%, and administrative expenses increased—in part due to the one-time expensing of previously capitalized intermediary services.

Since the beginning of the year, the stock has lost approximately 50% of its value. At the current price, the stock trades at about 29 times 2026’s projected earnings, whereas Huatai Securities considers a fair valuation of 57.8—the average for comparable Chinese companies (the report is available at the editorial office). In other words, Intsig is valued at roughly half the price of its peers, but the market is waiting for confirmation that the earnings slowdown is temporary.

Growth drivers could include the international audience and the development of the TextIn corporate platform for AI agents, while risks include stricter data protection requirements and competition overseas. On August 20, Huatai Securities maintained its “Buy” rating with a target price of 163.07 yuan, implying 96% upside potential.

According to Market Screener, Intsig Information shares have five “buy” recommendations from analysts. The average price target—173.04 yuan—is nearly twice the most recent closing price.

This is not intended as individual investment advice.