The tech run that we have been experiencing came under some pressure on Thursday with FAANG stocks like Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT) and others pulling back as traders rotated out of large caps and into small-cap stocks, as reported by Investopedia. The article went on to say that this rotation was mainly because of the expectations that the Federal Reserve will move to reduce the interest rates this year and this would definitely be beneficial for micro-cap stocks, as it may improve their risk profiles.

Over the past couple of years, thanks to a boom in AI spending and investment, micro-cap stocks have left somewhat out of the picture, with indices like the Russell 2000 index gaining only 38.79% over the past five years to the Nasdaq’s 125.85%. Broadly, I believe that these micro-cap stocks could be seen as undervalued on a systematic basis, which gives them huge potential for investors.

So here are three micro-cap stocks for investors to consider buying amid these market developments and projections.

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BlackSky Technology (BKSY) A photo of a satellite over earth.

Source: AlexLMX / Shutterstock

BlackSky Technology (NYSE:BKSY) is an interesting but quite a risky investment. Still, there is no gain without a proportionate amount of risk to take on, and BKSY is one of those hot, micro-cap stocks that could become a multibagger.

The thesis for BKSY hinges on the planned launch of next generation Gen-3 satellites, which could be a game changer given that the enhanced imaging could lead to new applications and acquisition of new clients.

However, BKSY does have some weaknesses. Its crucial problem is profitability — or the lack thereof. Although there is an increase in adjusted EBITDA, BlackSky remains to have significant GAAP losses and negative free cash flow because of the high operating costs and capital investments.

Still, the satellite technology has a unique competitive advantage in that it allows customers to “capture and quickly deliver large volumes of dawn-to-dusk, time-diverse imagery [that] increases transparency into strategic defense and economic activities which could otherwise have gone unnoticed.”

Plug Power (PLUG) Plug Power logo on computer screen. PLUG stock. micro-cap stocks

Source: Postmodern Studio / Shutterstock

As an investor, I must say that I am quite bullish on Plug Power (NASDAQ:PLUG). I do agree that the company has gone through some difficulties in the past but I think that the recent events have greatly improved the company’s position.

The major development is that Plug Power has at last got a conditional $1.66 billion loan guarantee from the Department of Energy in May. This is a great endorsement to the company’s technology and the future business expansion plans. Of course there are some steps that they have to overcome in order to get the actual money, but the fact that the Department of Energy is ready to invest such a large amount is already a big plus.



When analyzing the recent financials, there is still much to do and improve in terms of profitability. However, the company is clearly progressing — service and fueling margins are growing and the company has managed to control cash outlay quite effectively. With the new capital they can raise, I think they have a decent chance of reaching self-sustaining free cash flow in the next three to five years, which would be supported by a capital raise. This then makes it one of those micro-cap stocks with great potential.

Turtle Beach (HEAR) micro-cap stocks

Source: Shutterstock

I am quite enthusiastic about the current happenings at Turtle Beach (NASDAQ:HEAR). This renowned gaming accessories firm has recently acquired something that I feel will allow it to expand and become profitable in the future.

In my opinion the $118 million deal to acquirePerformance Designed Products is a big deal. Performance Designed Products is a key rival particularly in the controller category, thus adding them to the company’s product line and market presence enhances the company’s standing.

However, the complementarities expected from this deal are quite handsome as well. The company expects to achieve cost synergies of $11 million and there could be revenue synergies as well given their combined scale and distribution reach. This should help in increasing the profitability of the company greatly.

Amid the announcement, HEAR has also courted the attention of some Wall Street analysts, despite having a market cap of just $300 million. Within the next twelve months, HEAR is expected to post positive accounting profits, as it has a forward price-to-earnings ratio of 14x. These factors combined then makes it one of those micro-cap stocks with immense potential.

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor held a LONG position in NVDA.

Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.

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