When it comes to investing, many beginners focus their attention on big, well-known companies like Amazon or Apple. While those are strong options, there’s another part of the stock market that could offer even bigger growth potential for your portfolio: small-cap stocks.

These smaller, lesser-known companies might not make the daily headlines, but they’ve proven to be fertile ground for significant returns for savvy investors. Sure, small-cap stocks are riskier than large-cap companies, but with higher risk comes the potential for higher reward. For long-term investors, including a few small-cap stocks in your portfolio could be a smart move to diversify your investments and tap into future growth.

This guide is here to help demystify what small-cap stocks are and why they’re a powerful tool for investors. We’ll also explore seven small-cap stocks that analysts believe have big potential in 2025. Whether you’re just starting out or looking to deepen your investing knowledge, this list will help you understand why small caps are worth watching.

What Are Small-Cap Stocks?

“Small-cap” stands for “small capitalization,” which refers to the total market value of a company’s shares. Small-cap companies typically have a market capitalization between $300 million and $2 billion. For comparison, large-cap companies like Microsoft have a market cap in the trillions of dollars.

These smaller companies are often in the early stages of growth or operate in niche industries. They might not have the resources (or reputation) of their larger counterparts, but their size gives them room to grow, making them attractive to investors willing to take calculated risks.

Here are some reasons why small-cap stocks could be a smart investment choice, especially for those looking to grow their portfolio over the long term:

  1. Higher Growth Potential: Since these companies are still growing, their stock prices can increase rapidly when they succeed.
  2. Undervalued Opportunities: Small caps are often under the radar, meaning you could discover hidden gems before the broader market catches on.
  3. Diversification: Adding small-cap stocks to your portfolio helps balance out investments in large-cap and mid-cap companies.

However, small-cap stocks are also more volatile than their larger counterparts. They’re more sensitive to market changes, and their smaller size makes them less stable during economic downturns. If you’re a beginner, it’s wise to balance these stocks with stronger companies in your portfolio.

Now that you understand why small-cap stocks can be appealing, let’s take a closer look at seven companies that have the potential to shine in 2025. Remember, these are not guarantees, but they’ve been flagged by analysts and experts for their promising growth stories.

1. DigitalOcean Holdings (Ticker Symbol: DOCN)

Industry: Cloud Computing

Market Cap: ~$4 billion

DigitalOcean specializes in providing cloud services like hosting and storage for small businesses and developers. While major players like Amazon and Microsoft dominate the cloud computing space, DigitalOcean focuses on simplicity and affordability for smaller customers.

Why It Has Potential

  • A growing number of small businesses and start-ups need cloud solutions.
  • DigitalOcean’s focus on niche markets gives it a competitive edge.
  • Revenue has been climbing steadily year after year.

2. Celsius Holdings (Ticker Symbol: CELH)

Industry: Energy Drinks and Wellness Beverages

Market Cap: ~$10 billion

Celsius is disrupting the health-focused beverage space with its line of energy drinks and supplements. Its branding appeals to fitness-conscious consumers, and it has carved out a strong niche alongside giants like Red Bull.

Why It Has Potential

  • Health and fitness trends are driving major growth in the wellness beverage industry.
  • Celsius is expanding into international markets.
  • The brand is quickly building loyalty among health-focused consumers.

3. Enviva Inc. (Ticker Symbol: EVA)

Industry: Renewable Energy

Market Cap: ~$1 billion

Enviva produces wood pellets used for renewable energy production, which offers a cleaner alternative to traditional fossil fuels. With global pressure to reduce carbon emissions, renewable energy companies like Enviva are gaining attention.

Why It Has Potential

  • Governments worldwide are increasing their investment in renewable energy.
  • Enviva’s technology has real-world applications for reducing emissions in energy production.
  • The renewable energy sector is projected to grow substantially in the coming years.

4. Ligand Pharmaceuticals (Ticker Symbol: LGND)

Industry: Biotech and Pharmaceuticals

Market Cap: ~$2 billion

Ligand specializes in developing technologies that help pharmaceutical companies bring new drugs to market. This business model makes it less risky than some other biotech companies, as it partners with larger firms.

Why It Has Potential

  • The biotech industry relies on innovation, making Ligand an integral player in the pipeline.
  • Ligand’s partnerships reduce risk while allowing the company to benefit from successful drug launches.
  • Strong cash flow and a history of adaptability signal consistent performance.

5. Azek Company Inc. (Ticker Symbol: AZEK)

Industry: Building Materials

Market Cap: ~$1.5 billion

Azek produces eco-friendly building materials like composite decking and recycled materials for construction. It’s benefiting from growing demand for sustainable construction products.

Why It Has Potential

  • Green construction trends are driving demand for environmentally friendly materials.
  • Growth potential in both residential and commercial real estate sectors.
  • Competitive edge due to its focus on recycling and sustainability.

6. Grocery Outlet Holding Corp. (Ticker Symbol: GO)

Industry: Discount Grocery Retail

Market Cap: ~$3 billion

Grocery Outlet focuses on selling discounted groceries, which appeals to budget-conscious consumers. This business model tends to perform well during economic uncertainty when households are looking for ways to save.

Why It Has Potential

  • Economic slowdowns often lead to increased sales for discount retailers.
  • Expanding footprint in underserved markets.
  • Strong performance during inflationary periods.

7. Calix, Inc. (Ticker Symbol: CALX)

Industry: Broadband Technology

Market Cap: ~$4 billion

Calix provides technology that helps broadband companies improve their networks and services. With the demand for high-speed internet continuing to grow, Calix is well-positioned to benefit.

Why It Has Potential

  • A growing need for better broadband access in rural and suburban areas.
  • Partnerships with broadband providers secure a steady revenue stream.
  • Strong financials and strategic initiatives for expansion.