Underrated AI Stocks with Long-Term Growth Potential: Identifying Pre-Breakout Innovators

The artificial intelligence (AI) sector continues to redefine industries, but while giants like NVIDIA and Microsoft dominate headlines, a quieter revolution is unfolding in niche markets. For investors seeking exposure to AI's next wave of disruption, the key lies in identifying pre-breakout innovators with strong fundamentals, scalable business models, and limited institutional scrutiny. Three such companies-Guardforce AI Co., Limited (GFAI), Rekor Systems (REKR), and Innodata (INOD)-stand out as underrated contenders poised to capitalize on AI's vertical-specific applications.

Guardforce AI: Robotics and Security's Quiet Disruptor

Guardforce AI operates at the intersection of AI, robotics, and physical security, offering solutions that blend automation with real-world utility. Despite its innovative approach, the company remains largely overlooked by Wall Street, a factor that may soon shift as demand for AI-driven security solutions accelerates.

In the first half of 2025, Guardforce reported revenue of $18.2 million, a 3.6% increase year-over-year. While this growth appears modest, the company's strategic focus on high-margin AI agent platforms and its Robots-as-a-Service (RaaS) model position it for long-term scalability. Recent contract renewals with major clients, including Thailand's Government Savings Bank, underscore its ability to retain institutional partners. Additionally, the launch of DeepVoyage Go-an AI-powered itinerary planner for travel professionals-demonstrates Guardforce's agility in expanding into adjacent markets.

Financially, Guardforce maintains a strong liquidity position, with $25.0 million in cash as of June 2025. This capital provides flexibility for R&D investments and strategic acquisitions, which could further solidify its competitive edge. Analysts note that the company's R&D spending surged in 2024, laying the groundwork for a potential margin expansion as its AI-driven solutions mature.

Rekor Systems: Transforming Traffic Management with AI

Rekor Systems is redefining urban infrastructure through AI-powered traffic analytics and automated license plate recognition. Its recent financial and operational milestones highlight its potential to become a leader in the smart city movement.

In Q3 2025, Rekor achieved record revenue of $14.2 million, a 35% year-over-year increase. The company's adjusted gross margin expanded to 63%, driven by a shift toward higher-margin software sales and its Data-as-a-Service (DaaS) model. Operational efficiency also improved, with adjusted EBITDA losses narrowing to $1.5 million-the narrowest in Rekor's history.

A pivotal catalyst for Rekor's growth is its $50 million contract with the Georgia Department of Transportation (GDOT), which could balloon to $100 million through cooperative purchasing. This deal not only validates the scalability of Rekor's Discover® platform but also positions the company to benefit from federal infrastructure spending tailwinds. CEO Robert A. Berman emphasized that the contract "solidifies Rekor's role as a critical player in roadway intelligence," a sector projected to grow as cities prioritize AI-driven safety and efficiency.

Innodata: The Unsung Hero of AI Infrastructure

While Guardforce and Rekor apply AI to verticals like security and transportation, Innodata operates in the foundational layer of the AI ecosystem: data preparation. As generative AI models demand ever-larger datasets, Innodata's role in annotating and curating training data has become indispensable.

Innodata's Q3 2025 results were nothing short of impressive. Revenue reached $62.6 million, reflecting 20% year-over-year growth, while adjusted EBITDA surged 17% to $16.2 million. The company's Digital Data Solutions (DDS) segment, which accounts for 87.5% of revenue, is fueling this expansion. A recent $25 million federal contract further underscores Innodata's ability to diversify into high-growth markets like Sovereign AI and Model Safety.

Despite these strengths, a DCF analysis suggests the stock is overvalued by 376%, while narrative-based models argue it is undervalued by 45.9%. This discrepancy reflects the market's uncertainty about the company's future cash flows but also highlights the potential for re-rating as AI adoption accelerates. With $73.9 million in cash and a 45%+ organic growth guidance for 2025, Innodata is well-positioned to capitalize on its role as an AI infrastructure enabler.

The Case for Niche AI Innovators

The stories of Guardforce, Rekor, and Innodata illustrate a broader trend: AI's most transformative applications often emerge in specialized markets. These companies are not chasing speculative hype but are instead building scalable solutions for tangible problems. Their limited analyst coverage and undervalued status present opportunities for investors willing to look beyond the obvious.

As AI continues to permeate industries, the next decade will likely belong to companies that master vertical-specific applications. For now, Guardforce, Rekor, and Innodata remain under the radar-but that may not last long.