By Svea Herbst-Bayliss

NEW YORK, Oct 21 (Reuters) - Activist investor Engaged Capital has built a sizable stake in Cognex CGNX.O and is urging the maker of machine vision systems to cut costs and use cost consultants, arguing this could help the stock price nearly double in the next two years.

"This is an AI company without the AI valuation," Engaged's founder and chief investment officer Glenn Welling said on Tuesday at the 13D Monitor Active-Passive Investment Summit in New York.

Welling did not disclose the size of Engaged's stake in Cognex but called it one of the hedge fund's biggest positions. A recent regulatory filing showed that Engaged had roughly $700 million in assets.

Cognex's smart cameras and bar code readers are used by customers including retailer Amazon AMZN.O and car maker BMW BMWG.DE for purposes such as spotting defects in packaging or scratches in doors.

The company, which has a market valuation of $7.7 billion, has seen its stock price tumble some 50% from its all-time high four years ago.

Now with new management at the helm - CEO Matt Moschner was appointed earlier this year and CFO Dennis Fehr was named to the position in 2024 - Welling said he is confident significant improvements can be made to drive revenue, profit and ultimately the share price higher. Cognex's share price traded at $47.64 at the start of the week.

Last year, the company reported margins of 17% but Welling said those could be closer to 40% with changes to the company's overall spending, particularly on its research and development side where it could cut back on projects with low returns.

Cognex's main competitor, Japanese company Keyence, boasts margins of 53%.

The company has also reengineered some products and with the help of artificial intelligence they are easier to install and operate, opening up a new potential field of customers, he said.

Welling said Engaged has had constructive discussions with Cognex and introduced the management to cost-cutting consultants who have been involved with other Engaged target companies.

(Reporting by Svea Herbst-Bayliss; Editing by Nia Williams)

((svea.herbst@thomsonreuters.com; +617 233 2138; Reuters Messaging: svea.herbst.thomsonreuters.com@reuters.net/))