AI’s Next Big Winners: 3 Small-Cap Stocks to Watch in 2025

Key Points

• AI is becoming an increasingly large part of the economy, and so are small firms looking to make a name for themselves in the space.
• Military, law enforcement, and e-commerce are among the key markets that these companies target.
• Two firms look to capitalize on $100 million or more in revenue opportunities, while one has already signed a $165 million deal.

In the midst of companies looking to implement AI and investors looking for a way to profit from the trend, up-and-coming AI firms continue to pop up. Below, I’ll detail three small-cap AI stocks to watch out for in 2025. Two have had great 2024s and are looking to continue their strong showings. The other is a beaten-down stock that is bringing its product to market soon, targeting $100 million in recurring revenue. All return and implied upside figures rely on the closing prices from Dec. 17.

Airship AI: Shares Rising and Analysts Still See Near Triple-Bagger Upside

Airship AI NASDAQ: AISP shares are on the rise big-time in 2024, up 86%. Airship AI analyzes unstructured data and formats it. A good example is in analyzing traffic video. The company's hardware and software can analyze video from surveillance cameras.

They can record the make, model, color, and license plate of a car that committed a traffic violation.

It then structures the information into a format that a spreadsheet or database can record.

Shares of the Redmond, WA-based firm have been on the rise this year as it has continually been winning government contracts. The agencies it is working with include the U.S. Department of Homeland Security, the Department of Justice, and the Chicago Police.

The company’s revenue in the last 12 months has been up 148% as of last quarter, and the firm is making strong progress in improving its margins. It expects free cash flow to be positive this year. If the company can close on a good percentage of its $130 million pipeline, shares could just be starting their way up. The pipeline is five times larger than its total revenue over the last 12 months. The average of price targets from Benchmark and Roth MKM implies shares could rise by 185%.

BigBear.ai: Increased Military Adoption and Enlistment Drop Provide Strong Potential

BigBear.ai NYSE: BBAI is another small stock that found success in 2024, with shares up by 59%. BigBear provides AI-driven analytics and intelligence solutions. The company targets three markets: national security, supply chain management, and digital identity.

Since October, the company has seen a particularly pronounced rise in shares after it received a five-year contract with the U.S. Army.

The contract, valued at $165 million, works to move the Army toward becoming a more data-centric fighting force.

A tailwind for BigBear.ai is the drop in military enlistment. From 1980 to 2020, military enlistment was down 59%. However, things do appear to be recovering, with recruitment up in fiscal year 2024. Still, this is a clear downward trend. It requires the armed forces to use more advanced technology to do their jobs with fewer people.

The company is also picking up nonmilitary customers. It recently finished installing its biometric verification technology at Denver International Airport. This follows the company's announcement of a master service agreement with Heathrow Airport in London, Europe's largest airport. Overall, BigBear.ai is showing solid progress, as military agencies and other notable organizations are working with the firm. Recent price targets from Cantor Fitzgerald and HC Wainwright imply the company's shares are close to fairly valued. However, that could change if new announcements influence a re-rating of this stock.

Rezolve AI: Tech Giants Help to Sell Its Gen-AI E-Commerce Solution

Rezolve AI NASDAQ: RZLV has seen its shares take a huge hit in 2024, down 69%. The company helps e-commerce platforms and merchants use Gen AI to boost customer engagement.

It uses a customized e-commerce large language model to make finding items customers want easier.

Its platform allows for conversational interactions where customers can type in a specific description of a product they want and get recommendations.

It can also recommend related products that can help e-commerce platforms drive higher revenues. A reason for excitement around this company is that it plans to commercialize its platform in Q4 2024 in Europe and in Q1 2025 in North America.

Rezolve also recently announced agreements with Alphabet NASDAQ: GOOGL, Google's parent company, and Microsoft NASDAQ: MSFT. The firms will help Rezolve distribute its platform to customers through the cloud computing infrastructure of these two tech giants. The company expects $100 million in annual recurring revenue by the end of 2025, compared to no revenue currently. If it can make good on that promise, shares of Rezolve AI could have an incredible year. The average of current Wall Street price targets implies a 37% upside in the shares.