There are some undervalued artificial intelligence (AI) penny stocks that are a great fit for investor’s portfolios. These companies trade at cheap valuations for a reason: namely, they have limited operating histories and there is a significant amount of speculation involving their future trajectories.

However I’m also confident that these AI penny stocks could potentially become multi-baggers for those who have the the right risk tolerance. One should be prepared to hold shares of these companies for the long run. Unlocking equity may take some time and will be a volatile ride.

So as the AI revolution continues, here are three AI penny stocks to buy. These names could surpass holding broad indices such as the Nasdaq and the S&P 500 — even on a risk-adjusted basis. Investors should then carefully study these companies and consider owning a small number or even a fractional number of shares.

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MicroCloud Hologram (HOLO)

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MicroCloud Hologram (NASDAQ:HOLO) focuses on holographic 3D visualization technologies, integrating AI to create immersive experiences. Some specific products it’s working on include holographic advanced driver assistance systems (ADAS) and holographic digital twin technology.

Last year, the stock price saw a significant rise, over 334%. However, for the past year, it has dropped 74.3%, which is par for the course for AI penny stocks, as well as penny stocks in general.

The reason I like HOLO is due to its fundamentals showing impressive growth, including its revenue, as it climbed 28.8% year-over-year to $72.51 million. However, the company is presently pre-earnings, and there is significant volatility in its stock price.

But for those who are especially bullish on holographic technology for use in high-end luxury vehicles and assisted driver systems via AI, HOLO could be that high-risk option that satisfies that requirement.

AXT (AXTI)

Source: shutterstock.com/YAKOBCHUK V

AXT (NASDAQ:AXTI) specializes in material science, producing semiconductor substrates that will be crucial in the AI revolution.

I believe that AXTI could be a strong pick if investors are looking to pick up shares of those AI penny stocks to buy.

This is despite the company reporting some short-term weakness in its fundamentals. Its revenues decreased to $75.8 million from $141.1 million in 2022. The company also faced reduced profitability, with GAAP gross margins falling to 17.6% from 36.9% in the previous year.

However, analysts believe the decline will be short-lived. They now anticipate revenues to reach $92.4 million, a substantial 22% improvement year over year. Additionally, the expected loss per share is projected to narrow significantly to 10 cents.

All of this has led to some wild swings in AXTI’s valuation but I feel that it’s still cheap. The stock trades at just 2.3 times forward sales and 16 times forward earnings. That puts it significantly below the median of its peers.

Beamr Imaging (BMR)

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Beamr Imaging (NASDAQ:BMR) utilizes AI to enhance the quality and efficiency of digital imaging.

I like BMR a lot, as it fills a niche position in the market that larger firms have currently ignored. Also, there could be some reasons to feel optimistic about its prospects. Revenue edged up to $2.9 million in FY2023 from $2.86 million in the previous year. The company also reported a reduced net loss per share from 48 cents in FY 2022 to 6.2 cents in FY 2023

Most recently, the stock has seen significant activity. Shares surged notably following the announcement of accelerated video standard adoption in collaboration with Nvidia (NASDAQ:NVDA). As such, its stock price has climbed 80.6% over the past year.

The market is currently trying to figure out how to price in BMR’s valuation amid its collaboration with perhaps one of the most important tech companies on the planet today. But I feel that it will continue to come back down to earth. It will trade closer to its long-term mean price of around $1.50 per share. Eventually, BMR stock will settle down into the $2 territory following this development.

On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.

Read More: Penny Stocks — How to Profit Without Getting Scammed

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.

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