With inflation readings mixed, interest rate paths diverging and energy markets keeping everyone on edge, many investors are looking beyond the mega cap AI leaders and towards smaller stocks that are still shaping the future of machine learning, automation and data intelligence. The AI Small Caps screener focuses on these early stage companies, where new products and business models can have a meaningful impact on growth potential. In this article, you will see 3 stocks from the screener that stand out on fundamentals and business quality, providing a starting shortlist for further research into this theme.

Butterfly Network (BFLY)

Overview: Butterfly Network is a medical technology company that makes handheld ultrasound devices that plug into a smartphone, tablet, or computer, and supports them with software like Compass AI and ScanLab to help clinicians and educators perform and interpret whole body imaging. It also offers specialized products such as a bladder scanner and a veterinary system, selling through direct sales, distributors, and online channels in the US and internationally.

Operations: Butterfly Network generates about US$102.9 million in revenue from providing an AI enhanced personal ultrasound solution, with roughly US$81.8 million from the United States and US$21.2 million from international markets.

Market Cap: US$2.3b

Butterfly Network is attracting attention because it brings ultrasound imaging onto a chip, pairing handheld scanners with AI software like Compass AI at a time when partnerships are emerging across healthcare and AI. Recent collaborations, such as the Midjourney agreement that could lead to up to US$74 million in payments over five years and broader licensing potential, show how its technology may be used beyond hospitals. At the same time, the company is still loss making, relies on higher risk external funding, has seen insider selling, and trades on a rich P/S multiple. As a result, expectations are high. For investors who can handle volatility, the balance of breakthrough potential and meaningful risks makes this a story to watch closely.

Butterfly Network’s ultrasound on a chip story is grabbing attention, but the real question is whether the current expectations match the underlying business quality. This is exactly what the analysis report for Butterfly Network starts to unpack.

Pagaya Technologies (PGY)

Overview: Pagaya Technologies uses proprietary AI models and a large data network to help banks, fintechs and other lenders assess consumer loan applications, turning borrowers that partners would normally reject into approved customers while also powering marketing tools that bring more applicants into the funnel.

Operations: Pagaya Technologies generates about US$1.3b in revenue from software and programming services for financial partners.

Market Cap: US$1.4b

Pagaya Technologies stands out in the AI Small Caps screener because its AI underwriting and fee based model sit at the heart of how many lenders make credit decisions, with products like Decline Monetization and Dual Look helping partners approve more customers and grow volumes while keeping tech spend lean. Recent profitability, raised 2026 revenue guidance of up to US$1.575b, and regular ABS issuance to fund network volume point to a business that is scaling its model across more banks and fintechs. At the same time, reliance on external funding, regulatory scrutiny of AI credit models, concentrated partners and a recent legal dispute with Klarna mean execution risk is real. This is one reason the stock is closely watched by AI focused investors.

Pagaya Technologies sits at the junction of AI underwriting, rising fee income and real execution risk. The missing piece is how those forces fit together in one clear picture, which is exactly what the 4 key rewards and 1 important warning sign

Ambarella (AMBA)

Overview: Ambarella develops low power AI system on chips and software that sit inside cameras, sensors and other edge devices, helping cars, security systems, robotics and IoT hardware process video and run AI tasks locally instead of sending everything to the cloud.

Operations: Ambarella generates about US$405.2 million in revenue from semiconductors, with most sales tied to AI focused system on chips for edge video and automation.

Market Cap: US$2.9b

Ambarella may appeal to investors seeking exposure to AI at the physical edge, where over 42 million of its AI chips are already in the field, and a long term agreement with Hanwha worth up to US$800 million signals customer commitment to its CVflow platform. The company is still reporting losses and relies heavily on volatile IoT demand and concentrated Asian distribution, so execution missteps or weaker orders could hit margins and cash flow. At the same time, with roughly 80% of revenue already tied to edge AI, management activity such as the share buyback program indicates a focus on this shift, while the key question for investors is whether the current valuation and analyst views leave enough room for error.

Ambarella’s edge AI rollout and share buyback activity hint at a story that goes beyond headline losses, and the analyst forecasts for Ambarella reveal whether current expectations quietly hinge on one crucial swing factor that investors often overlook.

The 3 AI stocks covered here are only a small sample of what is out there, with the full screener surfacing 29 more AI focused small caps that pair early stage products with equally compelling narratives and risk profiles. To identify the highest conviction ideas for your watchlist, unlock the full AI thesis by using the AI Small Caps screener to filter for the specific catalysts, business quality markers and funding setups that matter most to you.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.