Prosper Stars & Stripes Covered Innodata (INOD) Short Position in Q2

Prosper Stars & Stripes Covered Innodata (INOD) Short Position in Q2

Thu, September 10, 2026 at 4:19 PM GMT+3 3 min read

Prosper Stars & Stripes, a long/short equity fund, recently released its second-quarter 2026 investor letter. The letter can be downloaded here. In Q2 2026, the portfolio delivered a strong net return of +30.1% compared to the Russell 2000 Index's +21.5% return and the HFRX Equity Hedge Index's +10.3% return. The long book drove performance, generating a 43.2% gross contribution, while average net exposure remained relatively modest at 47%. U.S. economic growth remained resilient despite inflation concerns, elevated energy prices, and geopolitical uncertainty. Markets rallied sharply after easing U.S.-Iran tensions pushed oil prices lower, supporting renewed risk appetite. Small-cap equities benefited significantly, with Information Technology, Industrials, and Health Care leading gains, while Energy declined as crude prices fell. Year to date, the Composite returned +23.7%, slightly ahead of the Russell 2000's +22.6% and well above the HFRI Equity Hedge Index's +9.7%. Additionally, you can review the Portfolio's top 5 holdings to see its best picks for 2026.

In its second-quarter 2026 investor letter, Prosper Stars & Stripes highlighted Innodata Inc. (NASDAQ:INOD). Innodata Inc. (NASDAQ:INOD), a data engineering company, was the largest detractor in the portfolio's short book during the quarter. On September 9, 2026, Innodata Inc. (NASDAQ:INOD) closed at $54.64 per share. Over the past month, Innodata Inc. (NASDAQ:INOD) declined 12.06% and its shares lost 10.38% over the past 52 weeks. Innodata Inc. (NASDAQ:INOD) has a market capitalization of $1.88 billion, and its stock has traded within a 52-week range of $34.23 to $125.14.

Prosper Stars & Stripes stated the following regarding Innodata Inc. (NASDAQ:INOD) in its Q2 2026 investor letter:

"Innodata Inc. (NASDAQ:INOD) was the largest detractor in our short book during the quarter. Innodata sells human-powered data to companies that build AI models. Clients pay the company to manufacture training data, evaluate model outputs, and run trust and safety operations. Innodata presents itself as a software company, but the work is delivered primarily by a large offshore workforce. Its gross margins tell the real story: approximately 44% in Q1 2026 (squarely in services territory) versus the 70%+ typical of software. We see several threats to the durability of their business model. First, customer concentration is extreme, with the largest client accounting for 56% of Q1 revenue. Second, since it is essentially curating data, Innodata's moat is narrow; it competes not only with rivals like Mercor, Scale AI, Surge, and Turing but potentially with its own customers. Third, revenue is project-based and more episodic than subscription or output-based models. Finally, frontier models are approaching recursive self improvement, in which models generate their own training signal and require less human input to advance, an existential threat to Innodata. Despite our concerns, the company reported an exceptional quarter, with revenue up 54% year over year, gross margins expanding 600 basis points, and EBITDA margins reaching 28%. We accepted our loss and covered the position in accordance with our stop-loss framework."

Innodata Inc. (NASDAQ:INOD) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held Innodata Inc. (NASDAQ:INOD) at the end of the second quarter which was 20 in the previous quarter. While we acknowledge the potential of Innodata Inc. (NASDAQ:INOD) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Innodata Inc. (NASDAQ:INOD) and shared whether the pullback in the AI stocks presents a buying opportunity. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.

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This article is originally published at Insider Monkey.