When it comes to high-risk, high-reward investments, few asset classes can compete with penny stocks. While these small-cap stocks tend to be volatile and speculative, the returns can be massive for investors with the patience and risk tolerance to ride out the ups and downs.

In the current market environment, I believe penny stocks are particularly compelling. As we all know, big tech and large caps have dominated the headlines and driven most of the stock market’s gains over the last decade. This inequality leaves few opportunities for small investors to generate outsized returns. However, there are promising penny stocks with fundamentals that suggest substantial long-term growth potential. With these in their portfolio, average investors can realistically target over 5,000% upside or more within the next couple of years.

The key is filtering through the universe of penny stocks to identify the diamonds in the rough that are positioned for massive growth. I specifically target startups nearing or at profitability in industries with strong tailwinds. Once sentiment eventually shifts and investors rotate back into higher risk/higher reward plays, these penny stocks could deliver exponential returns.

With the Federal Reserve projected to cut rates in mid-2024, I believe that shift is right around the corner.

Applied Digital (APLD)

Applied Digital (NASDAQ:APLD) is an operator of next-generation data centers and AI cloud services. The company now finds itself at the intersection of two massively important tech trends — artificial intelligence and digital infrastructure. With AI and machine learning continuing their seemingly unstoppable push into every industry imaginable, demand for the GPU-powered data centers in which APLD operates is skyrocketing.

And if that wasn’t enough, the latest Bitcoin (BTC-USD) rally and impending mining reward halving stands to drive even more business to APLD’s infrastructure solutions. Essentially, this company enables the picks and shovels of the AI revolution. Rather than developing bleeding-edge AI algorithms, APLD rents out the power-hungry data center space needed to companies pushing the AI envelope.

It’s a smart play that shields APLD from the risks of innovating while allowing it to capitalize on surging data center demand. Revenue is absolutely booming as a result, with 242% year-over-year growth last quarter and projections for 341% sales expansion in the current fiscal year. At just 0.9x forward sales, I believe the market is seriously underappreciating APLD’s potential.

With plans to expand capacity by a whopping 300 megawatts over the next two years, this under-the-radar data center disruptor should deliver exponential returns to patient investors as it rides the AI and Bitcoin waves in 2024 and beyond. The growth runway is truly massive, and I foresee this penny stock becoming a multibagger in short order.

OppFi (OPFI)

As a tech-driven financial platform expanding credit access through community bank partners, OppFi (NYSE:OPFI) finds itself at the intersection of two powerful trends – the rise of fintech and the democratization of finance. By serving middle-to-lower-income consumers overlooked by traditional lenders, OppFi fills a major void in the lending landscape through a responsible, transparent approach.

Essentially, this is a fintech disruptor with both a rapidly growing market and a strong social impact mission. As the Fed pivots to a looser monetary policy in 2024, demand for OppFi’s lending products should surge from sidelines-sitting consumers and banks alike. And with shares trading at just 4.6x forward earnings despite 35% EPS growth expectations, I believe the market is seriously mispricing OPFI’s potential.

Wall Street’s obsession with short-term results has left this high-growth, low-valuation fintech stock in the bargain bin. But with lending activity set to accelerate and rates providing a tailwind, OppFi appears ready to rip higher in 2024 and multibagger returns or better to shareholders over the next few years. For risk-tolerant investors, this overlooked play at the intersection of finance and technology is a diamond in the rough.

Blue Hat Interactive (BHAT)

As a fast-growing producer of augmented reality games and toys, Blue Hat Interactive (NASDAQ:BHAT) finds itself at the forefront of a tech trend. With Apple’s (NASDAQ:AAPL) new AR/VR headset stoking interest in spatial computing, investor and consumer buzz around the so-called “metaverse” has reached a fever pitch.

Blue Hat’s AR gaming and edutainment product portfolio perfectly positions it to ride this building hype wave in 2024 and beyond. With the stock boasting a tiny $10 million market cap, the upside from today’s levels is truly exponential if execution remains strong.

Of course, as an early-stage company focused on bleeding-edge tech at the onset of an industry shakeup, BHAT is extremely high risk. The market cap leaves no room for error in what promises to be a volatile emerging space in the years ahead. But for investors with the stomach for rollercoaster penny stocks, I believe Blue Hat Interactive has multi-bagger return potential if the stars align around augmented reality adoption.

On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.

Read More: Penny Stocks — How to Profit Without Getting Scammed

On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.