Finding tech stocks with unprecedented surge potential isn’t easy.
Sure, a company like Nvidia (NASDAQ:NVDA) or Meta (NASDAQ:META) could (and probably will) keep generating massive gains for shareholders. Sticking with these mainstays is a reasonable position. But the true long-term tech stock potential lies in picking tomorrow’s Nvidia or Meta today.
And that’s where small-cap tech stocks come into play. Lower priced with shakier financial standing, these companies are more likely 10x over the long run than existing tech stock leaders with massive valuations.
Of course, small-cap tech stocks are a finicky bunch. That’s why finding those that fit within an overall, larger ecosystem while approaching trends in a novel way is the best bet for finding tomorrow’s top tech stocks.
Aehr Test Systems (AEHR)
Aehr Test Systems (NASDAQ:AEHR) stands out among tech stocks as one prepared to ride the semiconductor wave onward, but with a twist. It’s operational model means it isn’t competing with waves of upstarts and industry stalwarts. That’s because AEHR’s niche lies in creating and providing test systems that guarantee the reliability and quality of semiconductors.
They’re making chips tinier, more complex, and pricier. To that end, demand for sophisticated testing systems will soon skyrocket. Likewise, newfound demand positions Aehr as a small-cap tech stock on the brink of massive upward momentum.
The company reported impressive financial performance earlier in January, with a 45% year-over-year (YOY) increase in revenue and a 63% rise in GAAP net income. CEO Gayn Erickson acknowledged potential challenges, noting a slowdown in the electric vehicle (EV) market’s growth rate. Consequentially, this affects the timing of orders from both existing and prospective clients. But, AEHR’s expertise extends beyond EVs, encompassing chips used in 5G technology, AI, machine learning, and more. Overcoming EV market-related hurdles, AEHR is on track for a record 2024 and onward.
Duolingo (NASDAQ:DUOL) is an often-overlooked gem among education tech stocks. It saw its shares more than double last year, though it’s now limping through 2024 and losing 15% since January. But, based on its strength, today’s dip is one worth buying. Despite initial doubts about the commercial viability of its mobile language learning apps, Duolingo has become a hot commodity.
The secret to its success? Customers can’t get enough. Several factors contribute to its widespread appeal. This includes the growing dependence on smartphones, the proven effectiveness of self-directed learning, engaging gamification elements, and lingering post-pandemic habits.
Duolingo’s latest earnings report revealed a 54% YOY surge in subscription rates, bringing in $121.3 million for the quarter. The number of paid subscribers skyrocketed to 5.8 million, marking a 60% YOY increase. Buoyed by this triumph, Duolingo recently unveiled plans to expand its educational offerings to include music and math lessons.
Although some argue that Duolingo’s market valuation is too high, similar criticisms were once leveled against Nvidia. With virtually no rivals matching its position, Duolingo is well-poised to maintain its dominance into 2024.
Fabrinet (NYSE:FN) can reasonably be called a small-cap tech stock equivalent to Nvidia. With its AI-focused business approach and solid growth recently, it climbed more than 60% over the past year. And, speaking of NVDA, the semiconductor stock ranks among Fabrinet’s major clients. But while Nvidia and others compete for supremacy in the AI “gold rush,” Fabrinet profits by providing the essential tools, ensuring its success regardless of the victor.
Fabrinet produces and supplies optical cables capable of transmitting data across hardware platforms at speeds exceeding 800GB per second, a crucial factor for developing machine learning and AI technologies. This product line contributes $500 million to Fabrinet’s revenue. Further, the potential for growth remains high. Projections suggest the company’s operational income could more than double shortly.
Additionally, Fabrinet’s valuation appears reasonable at merely 3x sales and 28.8x earnings. If economic conditions keep improving and tech firms continue targeting AI, Fabrinet could be one of 2024’s biggest tech stock stories.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.