5 Small-Cap Stocks Wall Street is Ignoring (But Smart Investors Aren't)

Today, investors are voting heavily in favor of large-cap tech giants, leaving smaller, innovative companies neglected and undervalued.

But that won't last.

At LikeFolio, our edge comes from real-time consumer behavior instead of hype and headlines. 

We analyze millions of data points from online purchases, searches, and social media engagements. Our method consistently spots trends long before Wall Street catches on.

In early March, while analysts were slashing forecasts and investors were panicking, our data suggested a different, calculated approach.

We identified eight companies poised to thrive despite widespread pessimism.

Our conviction paid off quickly.

Six of the eight companies surged, generating gains as high as 82% in just over a month. Robinhood (HOOD) soared 82%. Hims & Hers (HIMS) jumped 57%. Tesla (TSLA) gained 54%. Our average gain was an impressive 33%.

Interestingly, the two laggards, Innodata (INOD) and Aurora (AUR), have something in common: smaller market caps under $12 billion. This makes them more sensitive to interest rates and investor sentiment.

Despite recent sluggish stock performance, both companies are delivering exceptional operational results:

• Innodata posted 120% revenue growth in Q1 and reaffirmed 40% full-year guidance.

• Aurora launched America's first fully autonomous freight routes, now actively transporting commercial loads.

Why Now Is the Time for Small-Cap Stocks

Smaller stocks have struggled in 2025. The Russell 2000 and S&P Small Cap 600 remain nearly 7% down. But this represents a powerful opportunity.

Consider this:

• Small caps trade at less than 16 times forward earnings, while large caps trade above 22.

• Earnings for small-cap companies are projected to grow 20% next year, outpacing large caps.

• Yet outflows are hitting the highest levels recorded in a decade…driven by short-term fear.

Hedge funds and institutions are quietly beginning to step back in. According to Bank of America, institutional buyers recently showed the strongest interest in small-cap industrials since last August.

If the Fed starts cutting rates later this year, the recovery for small-cap stocks could be swift and powerful.

Here's our top five must-buy small-cap stocks that Wall Street is overlooking right now:

#5: Innodata (INOD) — Fueling the Next Wave of AI Training

Innodata is rapidly becoming a crucial player in the artificial intelligence ecosystem by providing the essential structured data that trains powerful AI systems.

This company collaborates directly with major enterprise and Big Tech firms to transform raw, unstructured information into clean, labeled, and enriched datasets.

These highly refined datasets ensure AI models are accurate, reliable, and compliant, particularly in critical, regulated industries like healthcare, legal, and finance.

The explosive growth of AI models, both in size and complexity, is driving unprecedented demand for the sophisticated data processing services Innodata offers.

This places the company at the center of an AI megatrend, providing foundational infrastructure necessary for scaling next-generation AI applications.

In Q1 2025, Innodata demonstrated its market strength by reporting impressive revenue growth of 120%, reaching $58.3 million. Even more striking was its profitability leap. Adjusted EBITDA surged from $3.8 million to $12.7 million. All while holding a robust cash position of $56.6 million.

Significantly, Innodata's largest client, already substantial with an annualized run rate of $135 million, grew spending by an additional 5% in just one quarter. While management expects spending from this top client may moderate slightly in the short term, the underlying growth narrative remains compelling.

Innodata is rapidly expanding its customer base, diversifying revenue streams, and firmly establishing itself as an essential "pick-and-shovel" play in the booming AI gold rush.

Innodata is fundamentally enabling the proliferation of AI.

As enterprises across various sectors increasingly rely on AI for mission-critical applications, Innodata’s expertise in data structuring and enhancement will become even more indispensable.

For investors looking to profit from the AI boom, Innodata is a high-potential stock that's strategically positioned to deliver significant long-term returns.