It’s a great time to consider investing in small-cap stocks. The Russell 2000 index — comprising 2,000 firms with market capitalizations between $250 million and $2 billion — recently hit its highest level since January 2022.
The benchmark index has continued to outpace the S&P 500 over the past several weeks. The index is more sensitive than its larger cousin and tends to move quicker in either direction. Given cooling inflation data, many believe small-cap stocks are set to rise rapidly over the coming months.
Investors also continue to rotate out of large tech stocks that have driven so much of overall market returns on AI’s growth. Investors are also beginning to price in the potential of a win in the upcoming election by Donald Trump this November. Trump is widely expected to boost the economy if elected. Meanwhile, rate cuts will serve to boost the economy regardless of election results. It all continues to benefit small-cap stocks.
Enlight Renewable Energy (ENLT)
Enlight Renewable Energy (NASDAQ:ENLT) has to be one of the more intriguing plays available to investors currently. It is well positioned as a small-cap stock with a market cap of $1.94 billion. That puts it right at the cusp of moving out of small-cap territory.
Regardless, what I like about Enlight Renewable Energy is the unique combination of factors conspiring in its favor currently. The small-cap narrative speaks for itself. What’s equally important is the fact that the company operates a renewable energy platform serving Israel, Europe and the U.S.
Renewable energy is in high demand as AI firms are looking to reduce their carbon emissions. However, they are increasing their energy consumption due to the AI boom. That makes renewable energy — with its negligible carbon footprint — the perfect choice for AI firms. AI hyperscalers like Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and others will look to utilities firms including Enlight Renewable Energy to meet that demand.
Not to mention, the company is booming in 2024 from both a top- and bottom-line perspective.
Harmonic (HLIT)
Harmonic (NASDAQ:HLIT) sells communications equipment in the broadband and video markets. The company specializes in virtualized broadband and video delivery solutions. Harmonic creates the infrastructure that allows cable and internet service providers (ISPs) to deliver high-quality internet and video streaming services to their customers.
The company produces and sells hardware and software products. These technologies help ISPs efficiently manage their networks and deliver faster internet speeds. Harmonic sells those products to large, well-known broadband firms, Comcast for example. It is a B2B small-cap stock providing the products that power the internet and video you and I use everyday.
It’s also a stock that is widely positively regarded by analysts, all of whom rate it a “buy” or better. There are other strong reasons to consider HLIT aside from the small-cap narrative. One of the best is its very strong gross margins. Harmonic benefits from strong pricing advantages that should fuel everything that falls below gross margins on the income statement.
SMART Global (SGH)
SMART Global (NASDAQ:SGH) recently rebranded as Penguin Solutions and designs, develops and sells memory solutions. Those memory solutions include products like DRAM modules, flash storage devices and memory upgrades. Those products are especially in demand at companies working in artificial intelligence, big data and cloud computing. That makes it a small-cap stock that is heavily leveraged in the AI opportunity.
Penguin Solutions’ head of marketing, Mark Seamens, notes:
“AI is being used to drive competitive advantage in almost every industry. Large language model (LLM) computing, analytics, inferencing, and simulation have all become critical across a wide range of applications, and enterprises of all sizes are racing to deploy AI for both differentiation and business acceleration, However, AI infrastructure is incredibly complex. It differs significantly from traditional enterprise IT and requires a new set of technical expertise that organizations have not yet developed. In many cases, the complexity involved in AI solutions is leading to slow adoption, delayed deployments, underperforming systems, and unrealized return on investment.”
Penguin Solutions has deployed more than 75,000 GPUs and has deep experience that it should be able to leverage in the AI space. The stock is very well regarded by the analysts who cover it suggesting real potential.
On the date of publication, Alex Sirois did not have (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
