Are small-cap stocks a good investment now?

Small-cap stocks have struggled relative to large-cap stocks in the AI era, but they could benefit from falling interest rates. They are also cheaper than large-cap stocks. The market is volatile at the moment, but under the right circumstances, small caps could outperform.

Does Warren Buffett invest in small caps?

Generally, Warren Buffett only invests in large-cap stocks. That's not because he doesn't want to invest in them, but because Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) is too big for small-cap stocks to move the needle.

How much should I invest in a small-cap?

Small caps tend to be riskier than large-cap stocks, so you may want to be more cautious with them. Dollar-cost averaging is always a good idea, and keeping initial investments in any stock below 10% of its portfolio is a good rule of thumb as well.

How much of my portfolio should be in small-cap stocks?

There's no definitive rule on how much of your portfolio should be invested in small-cap stocks, but if you're looking for some exposure to small caps, 10% is fair if you want a balanced portfolio.

Should beginners invest in small-cap stocks?

Yes, beginners can and should invest in small-cap stocks. Though they may be riskier than large caps, they also have more upside potential.

What are the historical returns of small-cap stocks?

Over the last ten years, the Russell 2000 small-cap index has averaged an annual return of 8%. In most timeframes up to today, the Russell 2000 has underperformed the S&P 500, which has surged during the AI boom.

Are small-cap stocks riskier than large-cap stocks?

Yes, small-cap stocks are generally more volatile and riskier than large-cap stocks. Small caps are less likely to be profitable and more sensitive to the broader macro-level economy.

5 Best Small-Cap Stocks to Buy in 2026

Best Small-Cap Stocks to Buy in 2026: Are They Right for Your Portfolio?

By Jeremy Bowman – Updated Sep 2, 2026 at 9:17 PM EST | Fact-checked by Frank Bass

Key Points

Small-cap stocks offer high growth potential but come with greater risks and volatility.
Magnite (NASDAQ:MGNI), a leader in CTV adtech, saw a 25% increase in impressions year-over-year.
Consolidated Water (NASDAQ:CWCO) specializes in desalination, a growing trend due to global water scarcity.

Loading paragraph...

What are small-cap stocks?

"Small cap" is short for small market capitalization, which is equal to a company's share price multiplied by the number of shares outstanding. A company is generally considered to be a small-cap if its market cap falls between $300 million and $2 billion, though small-cap indexes hold stocks with market caps above $2 billion.

Loading paragraph...

Top small-cap stocks to consider

Below are five small-cap stocks to consider. This is not intended to be a complete list, but meant as a starting point if you’re looking for smaller companies with meaningful growth narratives.

Loading paragraph...

Ticker Information Table
Name and ticker	Market capMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.	Current price	Industry
Magnite (NASDAQ:MGNI)	$3.3 billion	$24.88	Media
Amplitude (NASDAQ:AMPL)	$1.7 billion	$13.29	Software
Consolidated Water (NASDAQ:CWCO)	$463.1 million	$28.97	Water Utilities
Sweetgreen (NYSE:SG)	$770.2 million	$6.73	Hotels, Restaurants and Leisure
Serve Robotics (NASDAQ:SERV)	$406.7 million	$4.87	Hotels, Restaurants and Leisure

Data as of Sep 2, 2026. Showing 5 of 5 total entries.

Loading ticker_table...

1. Magnite

Loading paragraph...

NASDAQ: MGNI

Magnite

Premium Feature

Moneyball Superscore

82/100

Today's Change

(8.69%) $1.99

Current Price

$24.88

Key Data Points

Market Cap

$3.3B

Day's Range

$22.44 - $25.22

52wk Range

$10.82 - $26.19

Volume

5.9M

Avg Vol

2.9M

Gross Margin

64.64%

Loading company_card...

Magnite (MGNI +8.69%) is a supply-side digital advertising platform formed by several mergers and acquisitions. The company has established itself as a leader in video and connected TV (CTV) advertising, or ad-driven streaming, catering to online publishers and streaming platforms like Walt Disney (DIS +1.66%), Fox (FOX +2.60%), and Warner Bros. Discovery (WBD +0.25%).

Magnite partners with The Trade Desk (TTD +5.59%) and other adtech companies to manage publisher inventory efficiently and keep its technology up to date. In one positive sign, the company announced in 2025 that the FanDuel Sports Network has seen a 25% year-over-year increase in its total impressions, thanks to Magnite.

The ad tech company could also benefit from the recent ruling finding Google to have a monopoly in adtech, though Google won't have to divest its adtech business. While its growth has moderated since the COVID-19 pandemic boom, Magnite still has a long potential runway ahead of it and remains the CTV leader for supply-side adtech.

2. Amplitude

Loading paragraph...

NASDAQ: AMPL

Amplitude

Premium Feature

Moneyball Superscore

70/100

Today's Change

(-3.91%) $-0.54

Current Price

$13.29

Key Data Points

Market Cap

$1.7B

Day's Range

$13.19 - $13.92

52wk Range

$5.51 - $14.76

Volume

Avg Vol

2.3M

Gross Margin

72.28%

Loading company_card...

Amplitude (AMPL -3.91%) is a leader in digital product analytics. The company's software allows businesses to see how customers interact with their apps and websites so they can make improvements and learn what works and what doesn't.

For example, Amplitude helped guide Burger King's "Whopper Detour" campaign. It also showed Peloton (PTON +4.71%) how social engagement was key to getting its customers to stick with its workouts.

Like other software stocks, Amplitude struggled in the aftermath of the COVID-19 pandemic as many of its customers restructured their contracts. But the company has moved past that churn. It's seeing improving growth, especially in remaining performance obligations, a proxy for backlog.

Loading paragraph...

Amplitude also launched a new suite of AI agents in June 2025, which has since accelerated its growth and been well-received by customers. Those included a website conversion agent, an onboarding agent, and a monetization agent. The company has built out its product suite and looks poised to grab market share from Alphabet's (GOOG +0.53%)(GOOGL +0.63%) Google Analytics and Adobe (ADBE -2.20%) Analytics, the category leaders. If Amplitude can fulfill its promise, the stock could move a lot higher from here.

It's also made a number of acquisitions to boost its position in AI, including acquiring Kraftful, an AI-focused user feedback start-up, in July 2025.

3. Consolidated Water

Loading paragraph...

NASDAQ: CWCO

Consolidated Water

Premium Feature

Moneyball Superscore

62/100

Today's Change

(0.17%) $0.05

Current Price

$28.97

Key Data Points

Market Cap

$463M

Day's Range

$28.84 - $29.24

52wk Range

$28.17 - $39.12

Volume

80.5K

Avg Vol

98.7K

Gross Margin

34.86%

Dividend Yield

1.94%

Loading company_card...

Small caps come in all shapes and sizes, so it shouldn't be surprising to find a water utility on this list. Consolidated Water (CWCO +0.17%) specializes in desalination, which could become a big trend in the coming years as water supplies around the world are stretched and more coastal and tropical communities turn to desalination.

The company is currently focused on the Caribbean market, with several plants in the Cayman Islands and the Bahamas. That's helped it deliver strong growth in recent years, outperforming its water utility peers. The trend should continue as it capitalizes on the desalination opportunity and water scarcity becomes a greater problem.

In June 2025, the company raised its quarterly dividend 27% to $0.14, a sign of confidence in its future growth.

The company continues to expand its coverage areas, adding water treatment facilities in Colorado and California. Its quarterly results tend to fluctuate according to environmental factors like rainwater, but it's a unique company, and a good way to gain long-term exposure to what seems like an inevitable trend in water.

4. Sweetgreen

Loading paragraph...

NYSE: SG

Sweetgreen

Premium Feature

Moneyball Superscore

44/100

Today's Change

(4.02%) $0.26

Current Price

$6.73

Key Data Points

Market Cap

$770M

Day's Range

$6.38 - $6.83

52wk Range

$4.49 - $10.63

Volume

3.8M

Avg Vol

5.8M

Gross Margin

92.05%

Loading company_card...

Sweetgreen (SG +4.02%) is the leading fast-casual salad chain and has a ton of growth potential, considering it had only about 280 locations at the end of 2025.

While the company has yet to deliver significant profits on the bottom line, Sweetgreen has a high average unit volume, or average sales per unit, of $2.5 million, not far behind industry leaders like Chipotle (CMG +2.69%).

Sweetgreen was forced to retrench in 2025, selling off Spyce, the unit that owns the Infinite Kitchen, though it will retain the rights to use it. In 2026, the company launched wraps nationally, and the initial response has been positive, helping to drive a comeback in the stock. It faced a setback in July from the cyclosporiasis outbreak, which caused it to lower its full-year guidance, even though the company doesn't use iceberg lettuce, the implicated ingredient. Sweetgreen simply suffered because consumers avoid salad.

Sweetgreen is expanding its base with plans to add around 13 new restaurants in 2026. The company has significant growth potential over the long term, as it is aiming to reach at least 1,000 restaurants.

Sweetgreen has struggled recently due in part to weak demand from a key customer demographic, 25- to 35-year-olds. The slump has affected other fast-casual chains, but the company should get back on track over the long term with the help of its turnaround plan and tailwinds from the new wraps.

5. Serve Robotics

Loading paragraph...

NASDAQ: SERV

Serve Robotics

Premium Feature

Moneyball Superscore

46/100

Today's Change

(3.84%) $0.18

Current Price

$4.87

Key Data Points

Market Cap

$407M

Day's Range

$4.64 - $4.93

52wk Range

$4.32 - $18.64

Volume

2.9M

Avg Vol

4.6M

Gross Margin

-37009.37%

Loading company_card...

One potentially disruptive small-cap stock worth following is Serve Robotics (SERV +3.84%), a maker of food delivery robots. Serve is still a development-stage company with quarterly revenue of $3 million as of the first quarter of 2026, though it's targeting full-year 2026 revenue of $26 million.

The company was spun off from Uber (UBER +1.61%) in 2021 and still counts it as a major investor. Its delivery robots collaborate with the Uber Eats platform, delivering restaurant orders from chains like Shake Shack (SHAK +0.41%), and it signed a deal with DoorDash in Oct. 2025, significantly expanding its addressable market. In August, it added Wonder, which owns Grubhub, to its delivery network, shortly after the company said it wouldn't renew its agreement with Uber Eats, showing it's moving away from its roots.

Though Serve Robotics is still a small company, it's growing rapidly. Revenue is currently more than tripling , and it still has a long runway to expand. While Serve Robotics is a high-risk stock, it's the kind of business with upside potential that makes small-cap stocks attractive.

Loading paragraph...

Why investors like small-caps

Small-cap stocks attract investors for a few reasons. For one, smaller companies often have more runway -- it’s easier to double revenue from a smaller base than from a massive one. Small caps also tend to get less Wall Street coverage, which can create opportunities when a business is improving but still under the radar. And in strong economic expansions, small caps have historically delivered outsize gains.

The trade-off is that small caps can be bumpy. Earnings are often less predictable, financing costs matter more, and the stocks tend to swing harder when the market gets nervous. Since 2023, mega-cap AI stocks have dominated returns while many small caps lagged -- a reminder that patience and a long-term mindset matter here.

Loading paragraph...

Small caps vs. large caps

Large-cap stocks have outperformed small caps over the past decade, driven largely by mega-cap tech leaders like Nvidia, Tesla, and Meta.

But that hasn’t always been the case. Historically, small caps have had periods of strong outperformance, especially when:

Interest rates fall
Economic growth broadens
Investors rotate away from crowded mega-cap trades

Because leadership changes over time, many investors diversify across both rather than trying to pick a winner.

Loading paragraph...

Should you invest in small-cap stocks?

If you are willing to hold an investment for several years and feel comfortable with the price of a stock fluctuating significantly, then small-cap stocks might have a place in your portfolio. Owning small-cap stocks can boost your portfolio's overall growth rate, provided you commit to a buy-and-hold investing strategy.

Remember, small companies are more likely to fail than large, established businesses, as we saw during the COVID-19 pandemic. It's important to do your research before investing in any small-cap stock. You can also lower your risk by investing in a small-cap-focused fund.

Loading paragraph...

How to choose a small-cap stock

Small-cap stocks aren't a small corner of the stock market; they span all sectors. Many of the criteria you'd use for investing in general would apply to small-cap stocks, such as considering competitive advantage and growth rate, but there are some factors that apply specifically to small-cap stocks.

Small-caps tend to be more sensitive to economic cycles because they are more likely to be unprofitable or have large debt balances. Therefore, it's worth looking at the balance sheet and cash flow statements to ensure that the company can endure a recession.

You'll also want to consider the upside potential of the stock, and one way to do that is to look at the total addressable market the company is competing in. If it's a small, fast-growing company, especially one with a competitive advantage, in a large addressable market, that looks like a promising stock to own.

Loading paragraph...

How to invest in small-cap stocks

If you're looking to invest in small-cap stocks, the process is as simple as buying any other stock. Just follow the following steps.

Open your brokerage app: Log in to your brokerage account where you handle your investments.
Search for the stock: Enter the ticker or company name into the search bar to bring up the stock's trading page.
Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this stock.
Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
Submit your order: Confirm the details and submit your buy order.
Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.

Loading paragraph...

FAQ: Small-cap stocks

Loading faq...

About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

TMFHobo

@TMFBowman

Jeremy Bowman has positions in Chipotle Mexican Grill, Magnite, Sweetgreen, The Trade Desk, and Walt Disney. The Motley Fool has positions in and recommends Adobe, Alphabet, Chipotle Mexican Grill, Peloton Interactive, Serve Robotics, The Trade Desk, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends Magnite, Sweetgreen, and Uber Technologies and recommends the following options: long January 2028 $330 calls on Adobe, short January 2028 $340 calls on Adobe, and short September 2026 $35 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Best Small-Cap Stocks to Buy in 2026: Are They Right for Your Portfolio?

Key Points

What are small-cap stocks?