These 3 small-cap stocks offer up to 557% upside, according to some Wall Street analysts

Since the page turned to 2023, a little over 16 months ago, the bulls have been running wild on Wall Street. Professional and everyday investors alike have flocked to high-growth, innovation-driven companies, and have been particularly enticed by Wall Street’s next big investing trend: artificial intelligence (AI).

With AI and machine learning, software and systems have the ability to learn over time without human intervention. Being able to evolve and become more proficient at assigned tasks gives AI widespread utility and multi-billion dollar long-term potential. This is precisely why investors have been rushing into semiconductor stocks Nvidia (NASDAQ:NVDA) and has grown its market capitalization by almost $1.9 trillion since the start of 2023.

Nvidia’s upside potential may be limited as headwinds strengthen

A quick look at Nvidia’s growth numbers shows why investors can’t seem to get enough of this stock.

In fiscal 2024, which ended Jan. 28, Nvidia reported total sales growth of 126%, with data center revenue up 217%. Nvidia’s A100 and H100 graphics processing units (GPUs) have become staples in AI-accelerated data centers and are the benchmark for companies wanting to train large language models and run generative AI solutions on their cloud-based platforms.

But even if things are going well for Nvidia, the highest price target among Wall Street analysts is $1,400 set by Rosenblatt’s Hans Mosesmann. This implies that Nvidia’s maximum upside potential over the next year is 58%, based on the company’s stock close on May 3.

Despite this ambitious price target, it is possible that the basic infrastructure of the AI ​​movement is firmly in a bubble. Every major investment trend of the past 30 years has experienced a bubble during its early stages of expansion, and AI is unlikely to be an exception to this unwritten rule.

Additionally, Nvidia faces competition from all angles. External competitors are bringing new AI GPUs to market to directly compete with Nvidia’s H100 chip. Meanwhile, Nvidia’s four largest customers, which account for about 40% of its net revenue, are developing AI GPUs in-house for their respective data centers. In other words, Nvidia’s upside potential appears limited.

Instead of focusing on a potential bubble stock, some Wall Street analysts are forecasting an upside of between 223% and 557% for the following three small-cap stocks.

Power supply: implied increase of 557%

The first small-cap stock with truly eye-popping upside potential that could far outpace Nvidia in the returns column, at least based on one Wall Street analyst’s ambitious price target, is the software solutions company hydrogen fuel cells. Plug in the power (NASDAQ: CAP).

The story continues

According to analyst Amit Dayal of HC Wainwright, Plug Power stock can reach $18 per share. If accurate, that would represent a 557% upside from Plug shares closing at $2.74 last week. Dayal believes the company’s long-term double-digit growth projections, efforts to control expenses, and incremental margin improvement merit this aggressive price target.

On paper, Plug Power has had no trouble developing its sales. Even if its partnership with Amazon to supply some of its warehouses with hydrogen fuel cell-powered GenDrive forklifts helped Plug, the long-term buzz is linked to the green hydrogen infrastructure the company is developing for (pardon the pun) a cleaner transportation of fuel.

But just like Dayal’s price target, these ambitions may be a little too big for a company that has failed to rein in its spending. Although sales increased from $701 million to $891 million in 2023 from the previous year, its net loss more than doubled from about $194 million to about $508 million.

To make matters worse, Plug Power was forced to sell common stock to raise capital while burning through cash. Even if the company secures a much-anticipated $1.6 billion low-interest government loan from the U.S. Department of Energy, it won’t provide an immediate remedy to the company’s current cash burn .

I’m not a fan of Nvidia with a $2.2 trillion market cap. I’m perhaps even less of a fan of Plug Power, which is approaching a valuation of $2 billion.

Petco Health and Wellness: implied increase of 223%

A second small-cap stock with scorching upside potential that could potentially run circles around Nvidia, based on a Wall Street expert’s forecast, is the pet-focused retail chain. Petco Health and Wellness (NASDAQ:WOOF).

In a March note, Needham analyst Anna Andreeva maintained her firm’s Buy rating on Petco and remained firm on her previously issued $5 price target. If Petco were to reach this level, shareholders as of May 3 would benefit from a 223% increase!

The appeal of investing in the pet industry is simple: owners will happily open their wallets to keep their furry, feathered, gilled, and scaly “family members” healthy and happy. The American Pet Products Association reported in April that “total spending by the U.S. pet industry reached $147 billion in 2023,” and overall spending on pets is expected to increase each year until 2030. This is a recession-resistant industry that hasn’t seen a collective decline in sales in more than a quarter century.

On paper, Petco Health and Wellness should stand to benefit from continued growth in pet ownership in the United States. Management has wisely favored higher-margin services, such as grooming, veterinary services and pet insurance.

The major problem for Petco is that some of its debt is at variable rates. Since March 2022, the Federal Reserve has undertaken an aggressive rate-hiking cycle that has seen interest rates rise at their fastest pace in four decades. Simply put, Petco’s operating cash flow is eaten up by debt service expenses. This is far from ideal – and its falling share price is an indication of that.

While I think Petco has the tools to right the ship, it’s likely to remain in the doghouse for the next few quarters.

Novavax: implied increase of 285%

The third small-cap stock with sensational upside potential, according to a Wall Street analyst’s prognosis, is a biotechnology company. Novavax (NASDAQ:NVAX).

Although Novavax’s stock chart looks straight out of a horror movie, analyst Vernon Bernardino of HC Wainwright believes shares will hit $19. Given that Novavax finished the previous week at $4.93, Bernardino’s aggressive price target implies a near-quadrupling over the next year.

The reason Novavax’s stock chart looks so wild has to do with its promise and missed opportunity during the COVID-19 pandemic. It was one of the few pharmaceutical companies that successfully developed a COVID-19 vaccine. However, management delayed filing for emergency use authorization (EUA) in the United States, and the company struggled to scale up vaccine production. While Modern And Pfizer/BioNTech Having raked in tens of billions of dollars in sales from the proverbial low-hanging fruit with their respective COVID-19 vaccines, Novavax missed out on virtually all of that.

On the other hand, the Novavax vaccine is differentiated. While the Moderna and Pfizer/BioNTech vaccines rely on messenger RNA (mRNA) technology, the Novavax COVID-19 vaccine is protein-based and teaches the immune system how to recognize the virus and fight it. It offers an alternative treatment route for people who might be apprehensive about mRNA technology.

Additionally, Novavax is working on a combination COVID-19 and flu vaccine that could hit drugstores as soon as 2026, assuming accelerated approval by the U.S. Food and Drug Administration. This combination vaccine would almost certainly be a better revenue generator for the company than a seasonal COVID-19 vaccine.

Finally, Novavax and global vaccine alliance Gavi reached a deal worth up to $400 million in February, which was a major hurdle for the company. Thanks to significant cost reduction efforts, Novavax has a real chance of becoming profitable on an operational basis as early as next year.

Although Bernardino’s price target is high, Novavax appears to have the intangibles to outperform Nvidia.

Should you invest $1,000 in Plug Power right now?

Before buying Plug Power stock, consider this:

THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Plug Power wasn’t one of them. The 10 selected stocks could produce monster returns in the years to come.

Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $554,830!*

Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.

See the 10 values ​​»

*Stock Advisor returns as of May 6, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams holds positions at Amazon and Novavax. The Motley Fool holds positions and recommends Amazon, Nvidia and Pfizer. The Motley Fool recommends BioNTech Se and Moderna. The Motley Fool has a disclosure policy.

Forget Nvidia: These 3 Small-Cap Stocks Offer Up to 557% Upside, According to Some Wall Street Analysts, originally published by The Motley Fool