Innodata Is A "Pass"
Dec 23, 2024
Innodata (INOD) generates revenue predominantly from AI model "training" for tech giants, accounting for 50-60% of its sales, alongside more traditional digital data solutions like data entry, conversion, and media production services. The company focuses on executing one-off projects for large clients in the technology, publishing, and media sectors. The business has experienced significant growth in recent years, driven by the high demand for AI large language model (LLM) "training," which essentially involves feeding vast amounts of data to these models. However, Innodata lacks long-term recurring revenue, significant switching costs, or a clear economic moat. I believe the company is capitalizing on a surge in demand for AI training, which might not persist. Even if demand continues, Innodata will likely face increasing competition. Lacking many of the characteristics we seek in investments, it's a pass for me.
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