We live in an age dominated by technology. Over the past two decades, tech stocks have massively outperformed the overall market, driving major indexes to new heights. Big tech has delivered exponential returns thanks to transformative trends including mobile computing, cloud services, and e-commerce.
I believe we’re on the cusp of another wave of outsized growth led by tech stocks. This time, this growth wave will be fueled by artificial intelligence (AI) and its more advanced sibling, artificial general intelligence (AGI). When combined with the raw processing power unlocked by quantum computing, AI promises to revolutionize entire industries over the next decade and beyond.
The obvious beneficiaries of these trends are the big tech companies we already know and love. But I’m always on the lookout for the next generation of technology trailblazers – the smaller, undiscovered companies preparing to ride these mega trends to new heights. These stocks can be multi-baggers this decade if you get in early. Let’s take a look!
T Stamp (IDAI)
As a global provider of AI-powered identity services, T Stamp (NASDAQ:IDAI) caught my eye as an intriguing turnaround play. This small-cap stock has declined steeply, plummeting 95% from its peak in February 2022. However, recent metrics indicate this decline has stalled and a recovery is underway.
Revenue surged 127% year-over-year in Q3, with T Stamp achieving positive EBITDA for the first time ever. As the company approaches profitability and key business segments including banking and real estate improve, I believe significant growth potential lies ahead. T Stamp could ride these tailwinds to a dramatic recovery.
Notably, T Stamp provides biometric and behavioral data services for identity verification, authentication, and fraud/theft prevention. With digital IDs becoming ubiquitous across key sectors like finance and the government, T Stamp enables secure customer onboarding and transactions. As a digital transformation accelerates globally, the market for identity services is vast and still early-stage in terms of its growth potential.
Despite steep losses over the past year, T Stamp’s fundamentals tell a story of resilience and early success. The company is on the cusp of consistent profitability and cash flow generation. Once markets stabilize and recession fears wane, IDAI stock, and its beaten-down peers with improving fundamentals, could see their valuations multiply.
I’m not expecting a hockey-stick like pattern to emerge. But 300%-400% returns from current levels over the next few years seem viable if execution continues. For risk-tolerant investors, a small position makes sense.
Riot Platforms (RIOT)
As a pick-and-shovel play on Bitcoin (BTC-USD), Riot Platforms (NASDAQ:RIOT) offers even greater leverage to surges in the price of Bitcoin. This leading crypto miner generates its revenue via creating newly-minted Bitcoins the company can hold or choose to sell opportunistically. With Bitcoin recovering past the $51,000 level, RIOT stock appears ripe for a rally after materially under-performing Bitcoin over the past year.
A key tailwind for Riot, and any crypto-adjacent company for that matter, is Bitcoin’s upcoming “halving” in April 2024. Some see this supply shock as negative for miners, if Bitcoin’s price doesn’t rise enough to offset the 50% drop in block rewards. However, Riot has prepared for this eventuality by accumulating hashing capacity and stockpiling previously-mined coins.
For example, in January, Riot produced 520 Bitcoin from its mining activities. But it only sold 212 Bitcoin to fund operations, adding the rest to inventory. As the halving event approaches, management plans to hold its existing Bitcoin position, positioning the company well to leverage future price appreciation.
Concurrently, Riot is aggressively expanding with a new 400 MW Texas mining facility. This will come online through staged energization this year, offsetting hash rate declines from the halving. Once fully energized, Riot’s network should reach over 1 gigawatts of capacity.
Investing in RIOT stock does carry risks, with the most obvious being a potential protracted bear market in the crypto space. But with smart capacity growth and Bitcoin accumulation strategies in place, I believe Riot’s risk-reward setup is skewed positively to the upside over the coming years.
Cantaloupe (CTLP)
Cantaloupe (NASDAQ:CTLP) presents plenty of upside potential as fintech and payments tailwinds fuel the company’s recovery. This fast-growing provider of digital payments, software, and services for vending machines, kiosks, and self-checkout has reached a positive inflection point.
As a newly profitable small-cap company, Cantaloupe checks many important boxes for me. The company’s margins are expanding rapidly, with earnings per share expected to potentially hit 30 cents by fiscal 2025. That implies a forward price-earnings ratio around just 25-times. Indeed, that’s quite a modest multiple for a 15% top-line grower in fintech.
Additionally, several catalysts could drive upside surprises and multiple expansions. Cantaloupe recently eliminated all its long-term debt, while managing double-digit sales growth. The company’s cash flow outlook is strengthening, providing opportunities for investments in product development and sales capacity.
Attacking the massive under-penetrated retail market, Cantaloupe also provides software connectivity, analytics, and integrated payments. As more physical merchants upgrade old vending machines and kiosks with smart terminals, Cantaloupe stands ready to capture market share. That’s because the company’s terminals remove friction from the buying experience – an enormous advantage over the competition.
Admittedly, if the economy worsens substantially, Cantaloupe may see some pullback as spending slows. However, the accelerated shift toward electronic payments and system modernization seems highly likely to continue over the long run.
With reasonable valuation multiples today, Cantaloupe offers outstanding capital appreciation potential on the coming cashless commerce wave. Once tailwinds re-emerge, this turnaround story could ride improving momentum back toward old highs around $13 per share. That would imply up to 85% upside from current levels in just one year.
On the date of publication, Omor Ibne Ehsan did not hold (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.
