5 Under-the-Radar Small Cap AI Stocks: Opportunity or Trap After Recent Sell-Offs?

The AI sector has seen significant volatility recently, with many small cap companies experiencing sharp corrections from their peaks. As investor enthusiasm cools after an explosive rally, several lesser-known players in the AI and data infrastructure space are trading at depressed valuations. Here’s what you need to know about five small cap AI stocks that deserve a second look.

The Current Landscape for Small Cap AI Players

Over the past year, the AI boom has created distinct winners and losers among smaller companies. Some small cap AI stocks have soared over 200%, while others have plummeted near all-time lows. The divergence raises a critical question: Are we looking at oversold opportunities or signs of fundamental weakness?

Five Small Cap AI Stocks Under Scrutiny

Autoscope Technologies Corp. (AATC) – The Dividend Play

Trading with a modest market cap of $39.8 million, Autoscope Technologies operates in the microcap space. The company has developed the Intellisight Platform and offers an attractive dividend yield of 8.4% based on a $0.60 per share payout. Despite this income component, shares have declined 11% year-to-date, raising questions about whether the yield represents true value or a dividend trap.

Duos Technologies Group, Inc. (DUOT) – Infrastructure Pivot

Duos Technologies initially focused on rail and logistics but is repositioning into a high-growth segment: mobile gas turbines powering data centers. With a market cap of $135.5 million and a backlog of $40.7 million as of Q2, the company appears well-positioned for the AI infrastructure buildout. The stock has surged 178% over the past year and carries a Zacks Rank #3 (Hold) rating, suggesting caution despite the impressive gains.

FiscalNote Holdings, Inc. (NOTE) – The Contrarian Case

Perhaps the most beaten-down of the group, FiscalNote (market cap: $67 million) specializes in public policy software. Down 67% over twelve months and trading under $5 near historic lows, the stock has attracted bull-case investors. Notably, it maintains a Zacks Rank #2 (Buy) designation, which may signal that analysts see hidden value beneath the selloff.

TSS, Inc. (TSSI) – Growth Reversal

TSS operates as a data center services company with a $343 million market valuation. The revenue growth story is compelling: Q2 sales grew 262% year-over-year to $44 million. The stock gained 188% over the past year, but recent weakness—down 28.5% over the prior month—suggests momentum may be fading. The sharp correction raises the question of whether this is capitulation or merely profit-taking.

Innodata Inc. (INOD) – The Expensive Standout

Innodata, a global data engineering company, has outperformed its peers dramatically. With a market cap of $1.5 billion and organic revenue up 79% year-over-year in Q2 2025, growth metrics are solid. However, the stock’s 275.8% gain over the past year and a forward P/E ratio of 57 make valuation a serious concern. The recent 23.2% monthly gain suggests the stock may be pricing in perfection.

What This Means for Small Cap AI Stock Investors

The broader AI sector correction has created a bifurcated market: established winners continuing to climb on momentum, and earlier-stage small cap plays caught in forced liquidations. Whether these represent genuine buying opportunities or warning signs of sector exhaustion depends heavily on individual stock fundamentals and risk tolerance.

For those seeking exposure to small cap AI stocks, this moment demands selectivity rather than broad-based accumulation. The divergence in valuations, growth rates, and analyst ratings suggests that stock-picking—not sector-level timing—will determine success.