I am long Innodata (NASDAQ: INOD) with a 3-5 year investment horizon. While the spotlight often shines on the high-profile developers of Large Language Models (LLMs) and the chipmakers powering them, I believe Innodata has positioned itself as an indispensable infrastructure provider for the AI revolution.
As a "picks and shovels" play focused on high-quality data engineering, the company is capturing accelerating demand from Big Tech. I see significant upside potential as they execute toward what management calls "transformative growth."
The "Picks and Shovels" of the AI Boom
The core of the AI boom is data. You cannot build AI on low-quality data. Raw data scraped from the internet is insufficient for specialized, high-accuracy applications.
This is Innodata’s sweet spot. They provide essential services, including complex data preparation, expert annotation, and Reinforcement Learning from Human Feedback (RLHF)—the crucial process of using human experts to fine-tune AI outputs for accuracy and safety. As companies race to build more complex and reliable models, the need for this specialized data engineering is accelerating.
Big Tech Validation and Execution
The most compelling aspect of the Innodata story is its deep integration with the industry's biggest spenders. The company currently supports five of the "Magnificent Seven" technology giants. These are foundational partnerships in the AI development lifecycle.
This validation is clearly reflected in their recent performance. In their Q3 2025 results (reported November 2025), Innodata delivered record revenue of $62.6 million, a 20% year-over-year increase, and significantly surpassed earnings estimates (EPS of $0.24 vs. a $0.14 forecast).
Strategic Growth Drivers
Innodata is adapting quickly to the evolving realization that the quality of pre-training data is crucial for LLM performance. They invested in this capability and have already secured $68 million in potential revenue for these new programs across five customers.
I am also encouraged by their diversification efforts. The recent launch of Innodata Federal, a dedicated unit for U.S. government AI solutions, opens a significant new vertical. They have already secured an initial $25 million federal project. Between this new market and expanding services with existing clients, management has reaffirmed guidance for 45%+ growth in 2025 and anticipates "transformative growth" in 2026.
Assessing the Risks
Innodata is not without risks. The stock trades at a premium valuation (a forward P/E near 50x), indicating the market has priced in substantial optimism. The stock remains volatile; it experienced a notable pullback despite the strong Q3 earnings beat and is trading well below its 52-week high. The primary risk remains customer concentration; reliance on a few major tech clients means any shift in their strategy could materially impact Innodata's revenue.
Conclusion
Despite the valuation and volatility, I view Innodata as a high-conviction way to gain exposure to the AI infrastructure build-out. The necessity for specialized, high-quality data engineering is a foundational requirement for the future of technology, and Innodata is positioned at the center of this demand.
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Disclosure: This article expresses my own opinions and is for informational purposes only. It should not be construed as investment advice. Please do your own research before making any investment decisions.
