Butterfly Network And 2 AI Stocks To Watch

The Federal Reserve just raised US interest rates for the first time in more than three years, and money is getting more expensive. When borrowing costs climb, investors often look harder for companies that can grow through brains rather than brute capital. This is where smaller, AI focused stocks come in. In this article you will see three under the radar AI small caps pulled from our screener.

The three stocks below are just a starter set. The full screen surfaced 29 more AI focused small caps with equally compelling narratives that are not covered in this article.

If you want to go beyond headlines and actually analyze, compare, and identify which opportunities best fit your plan, head straight into the AI Small Caps screener.

Butterfly Network (BFLY)

Butterfly Network is trying to bring AI into everyday medical imaging through handheld ultrasound hardware paired with Compass AI and ScanLab software. The goal is to put smarter diagnostics into more clinicians’ hands rather than only in high end hospital systems.

Butterfly Network generated US$112 million from its AI enhanced personal ultrasound solution and has a market cap of about US$2.08b, reflecting its positioning as an AI powered medical imaging business.

For the AI Small Caps theme, Butterfly Network matters because its handheld scanners are tied directly into Compass AI and ScanLab. As more clinicians use the devices, the software can integrate additional data and workflow features into everyday care.

"On November 17, 2025, Butterfly Network’s subsidiary signed a five-year co-development and licensing agreement with Midjourney for exclusive access to its semiconductor-based ultrasound technology, securing a US$15 million upfront payment, US$10 million annual license fees, and further milestone and revenue-sharing potential."

Investors may watch how that kind of long term technology access could affect pricing power, software mix, and the structure of recurring revenue.

How that filters into pricing power and recurring revenue is only the start, and the full narrative for Butterfly Network maps where Butterfly Network’s AI model could really accelerate next.

Pagaya Technologies (PGY)

Pagaya Technologies plugs straight into the AI Small Caps theme by using machine learning to rescue declined loan applications and route them into a data driven lending network, which is where its core economics and competitive edge start to show.

Pagaya Technologies runs an AI powered lending marketplace for banks and fintechs, monetizing credit decisions and customer acquisition through software and programming revenue of about US$1.39b, with the stock valued at roughly US$1.76b in market cap.

"When a bank or fintech lender declines a borrower, Pagaya's AI re-evaluates the application in real time and approves qualifying customers the lender would otherwise have lost. The credit cycle risk is real. Consumer credit deterioration would stress the loan loss reserve."

For investors watching Pagaya Technologies, a single pressure point in how that AI driven loan funnel converts to lasting fee margins could prove decisive.

That pressure point is exactly where the story gets interesting, and the full narrative for Pagaya Technologies shows how Pagaya Technologies could turn credit cycle swings into accelerating fee potential.

Ambarella (AMBA)

Ambarella builds low power chips and software that let cameras, cars, and connected devices run AI on the device itself, tying directly into the AI Small Caps theme through its CVflow and AI neural processor SoCs. The business generated about US$418 million from semiconductors and is valued at roughly US$2.84b in market cap.

For Ambarella, the AI Small Caps angle is all about putting computer vision intelligence directly into vehicles and smart cameras, so the real question for investors is how fast that on device shift can turn into durable commercial traction.

"Sharply increasing demand for AI-powered edge devices, including portable video, robotics (notably aerial drones), and edge infrastructure, has led to a rapid expansion of Ambarella's addressable markets, as evidenced by record edge AI revenue and multiple recent, diversified design wins."

What happens if a single assumption about how quickly those edge deployments translate into pricing power and margin progress proves too optimistic?

That risk cut both ways, and the full narrative for Ambarella shows where Ambarella’s edge AI story could still be quietly accelerating beyond today’s headline wins.

Seeking Fresh Alternatives Before They Fly

Markets move quickly and the best breakout stories rarely stay under the radar for long. Scan fresh ideas before momentum gets fully caught by the crowd and act now.

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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.

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