5 Small Cap Stocks With Explosive Upside Potential

Forget the so-called summer slowdown, small caps are heating up. While large-cap tech continues to dominate the headlines, some of the most explosive upside in this market could come from under-the-radar names quietly building momentum beneath the surface. Small-cap stocks, often more volatile and speculative than their large-cap, blue-chip counterparts, can sometimes offer asymmetric reward profiles, especially when catalysts align with technical breakouts and vastly improving fundamentals.

As we move deeper into 2025, several small-cap companies have shown significant signs of potential big moves ahead. Several of the names discussed below have already experienced such significant moves this year that, technically, they’re closer to being categorized as mid-caps now. Whether it’s a turnaround story, a disruptive product, or a sector tailwind, these five names are worth watching closely.

Here are five small caps with explosive upside potential:

Root: A Disruptive Insurance Company Turning Heads

Root (NASDAQ: ROOT) has been one of the most impressive small-cap turnaround stories of the year. The app-based insurance disruptor has rallied over 90% year-to-date and 200% over the past 12 months, primarily driven by the company becoming profitable in Q3 last year. Through its app-based model, Root leverages real-time driving data collected during a test drive period to tailor insurance quotes.

This approach allows the company to assess risk more accurately while maintaining a lean, direct-to-consumer model that challenges legacy insurers. As of Friday’s close, ROOT had a $2.2 billion market capitalization and is a member of the Russell 2000 Index.

In Q1 2025, Root reported earnings per share of $1.07, surpassing the $0.45 consensus, and generated $349.4 million in revenue, which was more than $44 million above expectations. The company’s data-driven model, which prices auto insurance based on real-time driving behavior, continues to disrupt the traditional insurance space.

Technically, ROOT is eyeing a primary breakout level near $155, as shares continue to consolidate in a bullish formation. If it can clear that level with conviction, it could spark a powerful next leg higher, potentially targeting the previous 52-week high near $180.

TSS, Inc.: Blowout Earnings Lead to Triple-Digit Returns YTD 

TSS (NASDAQ: TSSI) is a small-cap player operating behind the scenes of the digital economy, offering infrastructure services for data centers, high-performance computing, and AI integration. While the company flew under the radar for years, that changed in 2025. TSS has seen its profile and stock rise sharply due to its specialized capabilities and surging demand for AI-related infrastructure.

Shares have skyrocketed 115% year-to-date, driven by blowout earnings and a business model that’s finally gaining recognition.

On May 15, TSS delivered a blockbuster Q1 report, with revenue soaring 523% year-over-year to $99 million and earnings per share increasing to $0.12 from a break-even position a year prior. The revenue surge was driven primarily by Procurement sales, which jumped 676% to $90.2 million, and Systems Integration revenue, which climbed 253% to $7.5 million. Gross profit totaled $9.2 million, up 239%, while net income reached $3 million, a massive leap from just $15,000 in the same quarter last year.

CEO Darryll Dewan noted that growth was propelled by strength in both Procurement and Systems Integration, including demand for AI rack integration. “We’re off to a strong start in 2025,” Dewan said, adding that the company expects production to ramp up throughout the year and into 2026, following the recent launch of its new facility.

At a $640 million market cap, TSS remains a true small cap, and with that comes heightened volatility and risk. While the upside potential is compelling, the stock is currently extended technically, with its RSI indicating overbought conditions. For investors interested in the story, it may be wise to wait for a healthy pullback or consolidation before entering, especially as the stock looks to digest recent gains and establish a more stable base.

Navitas Semiconductor: Next-Gen Power Semiconductors 

Navitas (NASDAQ: NVTS), with a $1.3 billion market capitalization, is a small-cap company that specializes in next-gen power semiconductors. It offers gallium nitride (GaN) and silicon carbide (SiC) chips that are faster, more efficient, and more compact than traditional silicon. These materials are critical for high-voltage applications, including electric vehicles (EVs), data centers, and renewable energy systems.

The stock has been volatile this year, to say the least. Before its most recent surge higher, it was trading near 52-week lows in May, down almost 50% from the start of the year. However, following breaking news in May, it has since surged to 52-week highs and is now up almost 100% YTD. What changed? On May 22, it was announced that NVTS was partnering with chip and AI giant NVIDIA.

In the true small-cap, heightened speculation and elevated risk fashion, NVTS still lacks profitability despite its incredible year-to-date surge. Navitas Semiconductor posted Q1 2025 earnings on May 5, 2025, reporting an EPS of -$0.06, which met the consensus estimate of -$0.06. Quarterly revenue fell 39.7% year-over-year to $14.02 million, above the consensus estimate of $14.01 million. Quarterly revenue has fallen in three consecutive quarters now. 

From a fundamental perspective, the above two-mentioned stocks appear more sound. However, from a technical standpoint, there is no denying the momentum in NVTS stock. Notably, the stock has an elevated short interest of almost 20%. If NVTS can consolidate above $7 and form a bullish breakout pattern, the technical momentum combined with elevated short interest might be the fuel it needs to stage another momentum move higher. 

Lemonade: An AI-Powered Insurance Model 

Lemonade Inc. (NYSE: LMND), known for its sleek user interface and AI-powered insurance model, has been one of the more polarizing names in the market. After suffering a sharp decline of nearly 50% from December to April, the stock has staged a strong rebound. It is now trading with a market capitalization of $3.2 billion, transitioning from small-cap territory to mid-cap status.

So, what does Lemonade do? The company offers a wide range of insurance products across the United States, Europe, and the United Kingdom, including renters, homeowners, auto, pet, life, and landlord insurance. What differentiates Lemonade from legacy insurers is its AI-driven infrastructure, which allows for automated underwriting, claims handling, and customer service. While it remains unclear whether its AI can consistently price risk more accurately than traditional models, Lemonade’s execution in scaling operations over the past few years suggests that it’s moving in the right direction.

Still, Lemonade remains a pure growth story that lacks profitability and is focused on expanding its footprint and gaining market share. With that focus on growth comes elevated risk and speculation, reflected in the stock’s significant short interest of nearly 28%. This suggests a large number of market participants remain skeptical of its valuation or business fundamentals.

From a technical perspective, though, the bulls are in control. The stock recently reclaimed the $40 level after breaking out of a months-long downtrend. The former resistance has turned into support, and the stock broke above its consolidation on Friday, signaling a potential continuation of upside momentum. If it can continue to build a base above $40, a new leg higher may be forming.

That said, investor sentiment remains cautious. Just six analysts cover the stock, with a consensus Reduce rating and a $28.17 average price target, implying roughly 36% downside from current levels. The setup appears favorable on the chart, and the company is undoubtedly a potential disruptor in the insurance space. However, the high short interest and bearish analyst sentiment suggest that this may be a name to trade, rather than invest or hold, unless the story materially changes.

Oscar Health: Aiming to Modernize Healthcare Coverage 

Oscar Health (NYSE: OSCR) is another digital insurance player aiming to modernize healthcare coverage. After years of struggle and loss, the company found its footing in 2025. Shares are up nearly 60% year-to-date, with recent earnings and guidance pointing to sustained fundamental improvements.

Oscar Health released Q1 2025 earnings on May 7, 2025, reporting an EPS of $0.92, which topped analysts' consensus estimates of $0.83 by $0.09. Quarterly revenue rose 42.2% year-over-year to $3 billion, above the consensus estimate of $2.87 billion. While its elevated P/E ratio of 76 is lofty, its forward P/E ratio of 24 paints a more accurate picture of future earnings growth in relation to its current price.

OSCR’s year-to-date surge has elevated its valuation to a mid-cap level, with a market capitalization of $5.4 billion as of Friday’s close. 

Having broken out above significant resistance near $18 last week, momentum has now shifted firmly in favor of the stock. Investors may want to monitor price action above the previous resistance level for a potential entry. If the stock can build a base above $18, previous resistance indicates significant demand and stable interest, representing a higher low within its newfound uptrend. 

Where Should You Invest $1,000 Right Now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here

The article "5 Small Cap Stocks With Explosive Upside Potential" first appeared on MarketBeat.