Investing in small-cap companies in rapidly expanding addressable markets is a proven strategy for generating outsized gains over time. In this article, I have identified two Canada-based AI (artificial intelligence) stocks you should consider adding to your watchlist right now.
Let’s see why.
Is this AI stock a good buy right now?
Valued at a market cap of $141 million, Intermap Technologies (TSX:IMP) is a geospatial intelligence company that provides high-precision 3D terrain data, imagery, and analytics solutions.
Intermap offers digital elevation models, radar imagery, and custom mapping products through software platforms and Data-as-a-Service solutions like InsitePro and NEXTView. Its geospatial services support diverse applications, including risk assessment, engineering, renewable energy, and transportation.
Analysts expect Intermap to increase sales from $17.64 million in 2024 to $55.5 million in 2026. The AI stock ended 2024 with a free cash outflow of $3.81 million. However, its free cash flow is forecast to increase to $12 million in 2026, indicating a healthy margin of almost 22%. If the TSX stock is priced at 25 times forward FCF, it should more than double over the next 12 months.
In the first quarter (Q1) of 2025, Intermap Technologies grew revenue by 153% year over year to $4.3 million, up from $1.7 million in the year-ago period. The geospatial intelligence company achieved a 28% pro forma adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin while shifting to profitability with pro forma net income of $833,000, versus a net loss of $839,000 last year.
Intermap saw growth across all business segments, with Acquisition Services revenue spiking 402% to $2.4 million, driven by government contracts, including Indonesia. Value-added data revenue increased by 96% to $510,000, while software and solutions revenue grew by 43% to $1.3 million, which was tied to the expansion in the global insurance business.
Intermap strengthened its financial position, raising $8.7 million during the quarter and ending with $19.2 million in total assets. The company also registered as a foreign private issuer with the SEC (Securities and Exchange Commission) as it progresses toward a senior U.S. exchange listing.
Is this AI stock undervalued?
Valued at a market cap of $102 million, Xtract One (TSX:XTRA) develops AI-powered threat detection gateway solutions that automatically scan people for concealed weapons and prohibited items. Its products include SafeGateway, SmartGateway, and Xtract One Gateway systems that enhance security screening in stadiums, casinos, venues, workplaces, and schools.
Analysts tracking the TSX tech stock expect its sales to rise from $16.4 million in fiscal 2024 (ended in July) to $83 million in fiscal 2029, indicating a compounded annual growth rate of over 38%.
Moreover, the company is forecast to report a free cash flow of $22.1 million in fiscal 2029, compared to an outflow of $4.9 million in 2024. If the AI stock is priced at 20 times forward FCF, it could surge over 300% in the next three years.
Xtract One posted record bookings of $13.5 million in its fiscal second quarter of 2025, representing 250% growth year over year and exceeding its previous record of $9.6 million. The AI-powered weapons detection company saw its total booking backlog rise to $37 million, up from $22 million in the same period last year.
Revenue reached $3.4 million for the quarter, a modest increase from $2.9 million last year. Top-line growth was constrained by deployment timing and a shift toward subscription-based contracts. It achieved gross margins of 70%, up from 61% last year, while successfully reducing operating expenses.
Healthcare has emerged as a major growth segment, accounting for nearly 30% of Q2 bookings as hospitals respond to rising security concerns and new legislation mandating weapons screening. Channel partners also delivered strong results, accounting for 50% of systems deployed and nearly half of recognized revenue during the quarter.
The new One Gateway product has gained significant traction in education markets while opening opportunities in manufacturing and distribution facilities, estimated as an $8 billion market segment.
Management expects accelerating growth in the second half of fiscal 2025, citing a qualified pipeline of $100 million, with $40 million in late-stage opportunities, positioning Xtract One for continued progress toward profitability.
