The AI boom has changed how investors invest in recent years as Nvidia (NASDAQ:NVDA) delivered jaw-dropping gains for those who bought the dip in 2022. However, the landscape is shifting again as recent market volatility forces investors to abandon high-risk stocks like AI and seek shelter in defensive stocks.
Many have thus started selling off risky assets like small-cap AI stocks. This pivot isn’t surprising. Current market trends reflect a reaction to historically high valuations and persistent tariff fears. Even after a market correction, plenty of stocks remain overvalued.
However, you should abandon the hunt for promising AI plays altogether. There’s a reason
even the most value-focused investors have a small portion of their portfolio allocated to high-risk, high-reward bets. Lesser-known, small-cap AI stocks can still pay off. Add them to the speculative slice of your portfolio. If calmer days return, these under-the-radar names could deliver multibagger returns reminiscent of NVIDIA’s meteoric rise over the past few years.
These stocks are very unlikely to become the next NVIDIA in terms of dominance. Rather, they can potentially replicate the kind of explosive gains that made NVIDIA a household name for investors. Let’s take a look.
China is pouring money into AI after the DeepSeek breakthrough. This was the first time a Chinese AI company had caught up with flagship models in the West and other companies are rushing to do the same with government support.
Xiao-I (NASDAQ:AIXI) is one of them. It is one of the only public companies that’s purely AI. It has its own language model like OpenAI’s ChatGPT called Hua Zang LLM, and also has AI glasses, both of which are already driving revenue. They’ve made deals with Inner Mongolia Yili Industrial Group to transition the customer to a subscription-based MaaS model. They’ve also inked an 8 million HKD deal with a Hong Kong public sector client to deploy a Hua Zang-powered chatbot for HR operations.
The market cap is still at $44 million, but the company could grow fast if its AI model gets more popular. Revenue grew 24.5% to $16.5 million for the most recently reported quarter (ended on June 2024). The net profit margin is at -47 %, but that narrowed by 33% year-over-year. If you think the AI narrative is going to stick around, it’s worth considering as a high-risk, high-reward buy.
SUSS MicroTec (OTCMKTS:SESMF) is a more established company. The company has specialized semiconductor services for lithography and wafer bonding. It also has micro-optics and advanced packaging.
It is currently sitting at a 45% dip from October 2024 highs. Historically, the stock has followed a cyclical path upward, with plenty of ups and downs along the way. Right now, it’s trading at a trough that could be a solid entry point.
SUSS MicroTec trounced estimates and reported preliminary quarterly sales of EUR 150 million in Q4 2024. On top of that, they’re expecting an EBIT margin of around 17.5%, which beats their earlier full-year forecast of 14 to 16%. Full-year revenue is projected to hit EUR 445 million, which is well above the midpoint of their prior guidance of EUR 380 to EUR 410 million.
The company could also benefit from the ongoing optimism in European markets. as Europe tries to become more self-sufficient.
The consensus price target at $62.1 implies around 50% upside potential, but I believe more upside is likely if the AI narrative regains steam.
Evolv Technologies (NASDAQ:EVLV) is in the security and protection services sector. That space is heating up as safety is becoming a bigger priority because the world is more volatile. The company has a product called Evolv Express, which has sensors to screen for weapons while letting people go through at a walking pace.
The algorithm can spot firearms, knives, and even improvised explosives while ignoring everyday items like keys or phones. This speed and efficiency are a big deal. Travel is bouncing back strong in 2025, with airports and public venues seeing more foot traffic. At the same time, schools and hospitals are beefing up security in response to growing threats. Evolv’s tech fits right into this sweet spot, promising higher throughput and fewer headaches for places needing to screen large crowds quickly.
Analysts expect 26.4% growth to $101.6 million in revenue this year and similar growth going forward. Solid profits are far off, but the losses here aren’t unsustainable. Revenue is also likely to come in higher than estimates as it has historically grown much faster.
The catch is that it uncovered employee misconduct tied to sales practices which caused a revenue hit of about $4 million to $6 million. The company ended up firing its CEO and now has new management. The company released a Q4 update where numbers still looked promising as ARR jumped 40% year-over-year to $113 million. Remaining performance obligations grew 47% to $262 million, so the core business is still growing fast.
The stock is at a significant discount due to the mess, so I’m bullish it could deliver triple-digit gains if new management rights the ship. The consensus price target of $5.6 implies 78.7% upside.
