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Small-cap tech stocks (generally defined as technology companies with a market capitalization of $2 billion or less) can be a risky investment. Many of these smaller companies are pioneering new technologies, but their stock prices can be volatile and they risk losing out to larger companies with stronger balance sheets.
Investing in a basket of small-cap stocks (say, 5 to 10 stocks) is less risky than concentrating your holdings in just a few companies. Some of these emerging technology companies have the potential to become leaders in their industries in the future, so they’re worth adding to your portfolio now.
4 small-cap tech stocks to watch
New technologies are reshaping the global economy and creating profit opportunities for small businesses and their shareholders. His four small tech companies to watch in 2022 are:
1. Pubmatic
Pubmatic (publisher 1.98%) is a digital advertising technology company. The company’s software provides Internet publishers with a means to monetize their works by selling advertising using artificial intelligence (AI) and automation.
PubMatic’s publisher clients include a diverse group of companies, including news organizations, e-commerce companies, video game manufacturers, and streaming TV services. The company derives about half of its revenue from Internet content formatted for mobile devices. Mobile is a growth opportunity for PubMatic, especially outside the United States, where the company is just starting to add customers. Digital marketing is also a long-term growth trend that will benefit the company.
PubMatic just completed its initial public offering (IPO) at the end of 2020. The company is doing well as the economy gradually reopens and corporate marketing spending begins to accelerate again.
2. Latch
latch (NASDAQ:LTCH) sells hardware and its cloud computing-based software to real estate developers, allowing them to integrate technology directly into residential development complexes. The company recently expanded its platform to include commercial office buildings. Latch’s software platform provides credential-enabled electronic building access for residents, guests, and service providers (such as package delivery services), manages smart home sensors, and powers internet connectivity.
Cloud computing has exploded in popularity over the past decade, and companies like Latch have successfully expanded into non-tech industries as cloud-based companies continue to gain market share. Latch is continually adding new features and recently went public through a merger with a special acquisition company (SPAC).
Latch is disrupting the traditional industry of real estate development and management. Of the approximately 123 million households in the United States, one-third pay rent, and more than half of American households are organized into apartment complexes or apartment complexes. There are an additional 90 million rental properties in Europe.
Like other fast-growing companies, Latch currently has little revenue and expects to operate at a loss for the next few years. While the company has demonstrated that cloud computing and connectivity can transform even the most traditional industries, shareholders still have an obligation to remain focused on the company’s potential rather than its current financial results.
3. App Harvest
As both an agricultural company and a technology company, app harvest (NASDAQ:APPH) wants to make agriculture sustainable and increase the public’s access to nutritious food. The company’s indoor farm technology can grow crops with up to 90% less water, and the company’s flagship facility in Kentucky is one of the largest indoor farms in the United States.
In April 2021, AppHarvest acquired AI and robotics company Root AI to expand its capabilities in indoor farming technology. The company is breaking ground on new farms and expects to have five facilities operational by the end of 2021. The company plans to add seven more units by the end of 2025. AppHarvest initially focused on growing tomatoes, but is expanding to growing leafy greens as well. The company is producing enough to begin supplying local grocery stores as well as the restaurant industry.
AppHarvest’s revenue is negligible, and the company spends a lot of money setting up new farms. But the company has proven it can produce healthier crops more sustainably, and is flush with cash after an IPO in early 2021. As of this writing, AppHarvest’s debt is also minimal. If sustainable food production is important to you, AppHarvest is worth considering.
4. Inseego
inseego (INSG -2.1%) designs and sells wireless networking hardware, as well as software that allows businesses to deploy and remotely manage devices connected to their networks. As next-generation 5G technology networks are built, demand for Inseego antennas and other infrastructure equipment is accelerating. Additionally, as remote work becomes the norm during the COVID-19 pandemic, more households are relying on mobile providers for high-speed internet, increasing demand for Inseego’s 5G mobile hotspot devices. These 5G devices are proving popular with schools, employers, and consumers alike.
T-mobile (TMUS 0.75%) has emerged as a market leader in this new digital mobility era, offering Inseego Wi-Fi routers to its customers. The telecommunications giant has the most 5G coverage of any U.S. mobile service provider, and while 5G is still in its early stages, the company continues to expand and improve its 5G network. , Inseego could ride on T-Mobile’s tailwind. Inseego is also helping international mobile carriers build out their 5G infrastructure, increasing access to the internet for consumers and continuing to roll out a new era of mobility.
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Why invest in small-cap tech stocks?
Investing a small amount of cash in emerging technology companies can add significant returns to your portfolio over time. But successful small-cap stocks eventually become mid-cap and even large-cap stocks, so maintaining portfolio exposure to small caps requires regularly finding new small businesses to invest in. Small-cap stock prices can fluctuate wildly, but small-cap tech stocks can also yield big returns for patient shareholders.
Nicholas Rossolillo has a position at PubMatic. The Motley Fool is affiliated with and recommends PubMatic. The Motley Fool recommends his T-Mobile US. The Motley Fool has a disclosure policy.
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