With the meteoric rise of the mega-cap tech titans, it’s all too easy to stick with the market’s biggest behemoths. As the stock market becomes more concentrated in the larger-cap names (it’s become incredibly top-heavy over the past year, perhaps too top-heavy), many investors may miss out on the potential of some of the less-crowded, smaller-cap plays.
Indeed, many behemoth-sized firms, especially in the tech sector, are making the most of their massive network effects to shift laterally into new markets. Add some generative artificial intelligence (gen AI) to the equation, and it’s tempting to stick with the oversized blue chips atop the market. Why bother taking a chance with smaller-cap stocks when the bluest blue chips take more than their fair share of growth and profits?
In any case, it’s the small-cap stocks that have more to gain as they look to grow in lucrative niche markets. As they incorporate next-generation technologies, like gen AI, to give young, tech-savvy generations a better experience, they may have what it takes to disrupt their way to greater growth and, perhaps, greater gains for investors.
Duolingo (DUOL)
Duolingo (NASDAQ:DUOL) makes learning new languages a form of entertainment for many, thanks to the unique personalized and gamified experience it provides. While some may doubt the app’s ability to help people learn to speak a new language fluently on its own (is Duolingo really all you need to learn a new language?), I do think the firm has taken the right steps to erode such doubts with some of its recent advancements.
Undoubtedly, it takes more than a daily exercise or quiz to really grasp a foreign language. Duolingo knows this and has taken steps to improve and enhance its platform to become more of a one-stop shop for learners. When it comes to mastering a new language, it can pay dividends to converse with someone (or some AI model) on a regular basis, with personalized tips and feedback given afterward.
As Duolingo continues tailoring the experience to users with its “growth model” while exploring possibilities with the Roleplay feature via Duolingo Max, I view Duolingo as one of the top AI beneficiaries that’s not on the radar of most!
With a mere $9.9 billion market cap, strong newfound momentum (shares have risen 82% in the past year), and a sizeable total addressable market, DUOL stock is worth watching closely as it uses AI to create the perfect language teacher right in our pockets.
Coursera (COUR)
Coursera (NASDAQ:COUR) is another lesser-known firm that could gain ground over the coming years as it leverages AI innovation to disrupt the rather outdated field of higher education.
At $14 and change, the stock boasts a mere $2.2 billion market cap at writing. After the stock’s latest 33% slide off 52-week highs, I view COUR stock as a terrific buy-the-dip candidate for small-cap investors who see online education playing a bigger role in the future.
Undoubtedly, generative AI poses a serious threat to a wide range of workers. Indeed, it may very well displace a significant number of jobs from writing to coding and even video editing. If AI does represent the fourth industry revolution, as many pundits seem to think, many displaced workers will likely turn to online learning platforms to reskill or reboot their career trajectories.
Those who keep their jobs will also need to AI-proof their careers. Constant learning and employee development will become the norm as AI pushes everybody to keep their toolkit up to speed. In a way, I view certifications and such resume add-ons as essential as employers place more emphasis on AI skills and enhanced productivity.
Moreover, the firm can also use generative AI to design new courses and curricula on the absolute cutting edge. AI technology is advancing so rapidly that the traditional education framework may not be agile enough to keep up with the times.
On Holdings (ONON)
On Holdings (NYSE:ONON) stock is more of a mid-cap than a small-cap, with its $11 billion market cap. After surging almost 60% in the past year, investors may be wondering what the next step (forgive the pun) will be for the disruptive footwear firm that’s found a way to break into a market dominated by heavyweight champs with massive marketing budgets and the backing of big names in the sporting world.
In its recent quarter, the stock took a hit to the chin, as the firm clocked in a quarterly loss against expectations that were expecting a profit. Management pointed the finger at currency headwinds. But only time will tell if the On brand can still grow in this rather mixed macro environment.
In any case, the stock recovered most of the ground lost post-earnings in less than a day. The On growth story still seems to be on the table, even if it hit a bit of a snag in Q4. Mid-cap investors have plenty of reason to stick with the name. It’s still an emerging brand, one of the most impressive in consumer retail, in my opinion.
On the date of publication, Joey Frenette 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.
