Innodata INOD has emerged as one of the market's most remarkable performers, with its stock skyrocketing 736.3% over the past year, outperforming the Zacks Computer and Technology sector’s growth of 20.6%. Following the company's stellar fourth-quarter and full-year 2024 results, the question for investors is whether this AI data engineering specialist still offers upside potential or if it's time to take profits.

Innodata's strategic positioning in the rapidly expanding generative AI space, combined with its impressive financial trajectory and robust future outlook, makes a compelling case for continued investment.

1-Year Performance

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INOD Record-Breaking Q4 Results Signal Accelerating Momentum

Innodata delivered exceptional fourth-quarter 2024 results that exceeded even the most optimistic projections. Revenues reached $59.2 million, representing staggering 127% year-over-year growth and comfortably surpassing the company's guidance of $52-$55 million. For the full year, Innodata reported revenues of $170.5 million, up 96% year over year.

Profitability metrics were equally impressive. Adjusted EBITDA for the fourth quarter totaled $14.1 million (23.9% of revenues), up 231% year over year. Net income reached $10.3 million compared with just $1.7 million in the same period last year. The company closed 2024 with $46.9 million in cash, more than tripling its cash position from year-end 2023, and maintains an undrawn $30 million credit facility.

Strategically Positioned in Big Tech's AI Investment Wave

Innodata's growth is strategically aligned with the massive AI infrastructure investments from tech giants. Morgan Stanley projects that Amazon AMZN, Alphabet GOOGL, Meta Platforms META and Microsoft will direct a combined $300 billion in capital expenditures toward generative AI in 2025, increasing to $337 billion in 2026.

CEO Jack Abuhoff highlighted this opportunity during the earnings call: "Following recent earnings reports from the Magnificent 7, it is estimated that Amazon, Meta, Microsoft and Google parent, Alphabet, will spend a cumulative $325 billion in CapEx and investments in 2025, driven by continued commitment to building out their artificial intelligence offerings."

Innodata has established itself as a crucial partner in this AI revolution by providing the high-quality data needed to train advanced language models. The company's football-to-dime analogy effectively illustrates the vast untapped potential in AI data — if all possible human knowledge that could be captured as data represents a football, today's best AI models have only trained on data equivalent to the size of a dime.

Customer Diversification and Expansion Drive Confidence

One of the most promising aspects of Innodata's strategy is its successful customer diversification efforts. While the company expanded its relationship with its largest customer to approximately $135 million in annualized run rate revenues (including $24 million in new awards during the fourth quarter and January), it's the growth among other tech clients that particularly excites investors.

Revenues from Innodata's seven other Big Tech customers grew an impressive 159% sequentially. This diversification reduces concentration risk while validating the company's land-and-expand strategy. Several ongoing pilots with these customers hold potential for "seven or even eight-figure revenue opportunities," according to management.

2025 Outlook: Growth and Strategic Investments

For 2025, Innodata has guided for at least 40% revenue growth, a projection that may prove conservative given the company's pattern of upward revisions throughout 2024. Management plans to reinvest a portion of operating cash flow into hiring key talent, technology expansion, product development, and sales capabilities while still growing adjusted EBITDA compared to 2024.

The Zacks Consensus Estimate for 2025 is pegged at $251.7 million, indicating year-over-year growth of 47.66%. The consensus mark for 2025 earnings is pegged at 87 cents per share. The earnings estimates have moved north by 6.1% over the past 30 days, indicating optimism.

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Premium Valuation Justified by Growth Trajectory

At first glance, Innodata's valuation appears steep - its 6-month forward 12-month P/S ratio of 7.76x significantly exceeds the Zacks Computer – Services industry average of 1.84x. However, this premium is easily justified by the company's extraordinary growth rate, improving margins, and strategic positioning in a market experiencing exponential expansion.

INOD’s P/S F12M Ratio Depicts Stretched Valuation

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Investor Takeaway: A Buy for AI-Focused Portfolios

Innodata represents a rare opportunity to invest in a company with both proven execution and substantial unrealized potential in the AI revolution. With its exceptional financial results, strategic positioning as a key enabler of AI advancement, successful customer diversification, and robust growth forecast, INOD remains a compelling buy, even after its meteoric rise.

For investors seeking exposure to the AI boom with a company that has already demonstrated its ability to capture significant market share, Innodata stands out as an attractive option in 2025 and beyond. INOD stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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