Innodata vs. C3.ai: Which Underdog AI Stock Could Deliver Bigger Gains?

Artificial intelligence spending is shifting from experimentation toward scaled deployment, forcing investors to reassess which smaller AI players are best positioned to convert demand into durable growth. Innodata Inc. INOD and C3.ai AI represent two very different approaches to monetizing this shift. Innodata operates as a core data-infrastructure enabler embedded deep inside AI model development and deployment, while C3.ai sells a broad enterprise AI application platform focused on operationalizing AI across industries.

Despite these differences, the two companies share important common ground. Both are upper small-cap range AI specialists operating below mega-cap hyperscalers, both are leaning heavily into generative and agentic AI use cases, and both are increasingly tied to government and large-enterprise adoption cycles. With valuations compressed across much of the AI software universe and execution becoming the key differentiator, comparing Innodata and C3.ai now offers insight into which underdog model may generate stronger shareholder returns over the next cycle. Let’s dive deep and closely compare the fundamentals of the two stocks to determine which one is a better investment now.

The Case for Innodata Stock

Innodata’s investment appeal increasingly rests on its role as a critical enabler of large-scale AI systems rather than a direct application vendor. Management emphasized during the third quarter of 2025 earnings call that demand from big-tech AI model builders is moving beyond pilot programs into scaled, recurring deployments, with six of eight major customers expected to grow meaningfully in 2026 and verbal confirmation already received for expansions with the company’s largest customer. This “land-and-expand” dynamic has translated into accelerating revenue growth, margin expansion and strong cash generation, underscoring Innodata’s operating leverage as volumes scale.

Strategically, Innodata has broadened its opportunity set well beyond traditional post-training data annotation. Investments in high-quality pre-training data have already resulted in signed and near-signed contracts representing roughly $68 million of potential revenue, most of which is expected to flow through 2026. In parallel, the launch of Innodata Federal positions the company to participate in U.S. government AI modernization, with an initial project expected to generate approximately $25 million of mostly 2026 revenue and additional opportunities under discussion. Management also highlighted sovereign AI initiatives across the Middle East and Asia as a medium-term growth vector, reflecting governments’ push to control their own AI stacks.

The primary risk for Innodata lies in customer concentration and execution. Revenue remains tied to a relatively small group of large customers, and project-based work can introduce volatility if budgets shift. However, the company’s expanding service mix, growing customer roster and strong balance sheet mitigate some of these concerns. Importantly, Innodata is already profitable and generating cash, which reduces financing risk as it invests for growth.

The Case for C3.ai Stock

C3.ai’s thesis centers on its ambition to become a horizontal enterprise AI operating system. The company’s fiscal second-quarter 2026 results highlighted solid sequential revenue growth, strong deal activity and accelerating traction in federal markets, with bookings in federal, defense and aerospace rising 89% year over year and accounting for nearly half of total bookings. Management views the shift from bespoke government-built solutions to commercial off-the-shelf AI platforms as a structural tailwind, particularly as agencies execute national AI strategies.

C3.ai’s partner-driven go-to-market model is another differentiator. Roughly 89% of bookings were driven with or through partners such as Microsoft, AWS and Booz Allen, and joint pipelines with hyperscalers have expanded rapidly. Product innovation remains active, with the launch of agentic process automation designed to expand C3.ai’s addressable market by enabling enterprises to deploy autonomous AI agents across complex workflows.

Yet challenges persist. Despite improving bookings momentum, C3.ai remains unprofitable, with losses expected to widen year over year in fiscal 2026. Revenue growth has been inconsistent, and management’s own guidance calls for a meaningful decline in fiscal 2026 revenues as the company works through sales execution issues and longer deal cycles. While the balance sheet is strong, sustained losses and uncertain top-line visibility weigh on investor confidence.

Recent Share Price Momentum: INOD vs. AI

Market performance over the past six months highlights the divergence in investor sentiment. Innodata shares have gained 20.2%, significantly outperforming the broader S&P 500’s 10.8% rise. By contrast, C3.ai stock has plunged 49.9% over the same period, reflecting skepticism around near-term growth visibility and profitability.

INOD Vs AI Stock Performance

How the Market Is Pricing Each Stock

Valuation levels underscore how differently the market views these models. On a forward 12-month price-to-sales basis, Innodata trades at 6.04X, modestly above C3.ai’s 5.63X. While neither multiple appears excessive within the AI sector, Innodata’s premium reflects its profitability, cash generation and clearer growth trajectory.

What Earnings Revisions Indicate for INOD & AI Stocks

Earnings estimate trends further separate the two stocks. Over the past 60 days, the Zacks Consensus Estimate for Innodata’s 2026 earnings per share has remained steady at $1.20, indicating 35.6% growth from 2025 levels alongside an expected 26% revenue increase. 

INOD Earnings Estimate

For C3.ai, analysts have narrowed the projected fiscal 2026 loss to $1.20 per share from $1.28, but this still represents a wider loss than the prior year, with revenues expected to decline more than 23%.

AI Earnings Estimate

Which Stock Has the Edge?

Both Innodata and C3.ai carry a Zacks Rank #3 (Hold), reflecting balanced risk-reward profiles. However, Innodata appears better positioned for upside. Its exposure to AI spending occurs earlier in the value chain, its growth is already translating into profitability and cash flow, and its expansion into federal and sovereign AI markets adds incremental optionality without materially increasing balance-sheet risk. C3.ai offers long-term potential if its platform vision gains traction, but near-term losses, revenue pressure and execution risk make its recovery path more uncertain. For investors seeking an underdog AI stock with a clearer line of sight to earnings growth and operational leverage, Innodata currently holds the stronger upside potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research