10 Strong Buy Small Cap Stocks to Invest In

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4. Applied Aerospace & Defense, Inc. (NYSE:AADX)

Share Price as of October 23: $10.00

Analyst Upside: 123.33%

Target Price: $22.33

Number of Hedge Fund Holders: 33

Applied Aerospace & Defense, Inc. manufactures designed subsystems for defense and space applications, such as missile and ammunition components, launch vehicle structures, and aircraft aftermarket parts. The company went public in June at $20 a share and raised approximately $635.6 million in net proceeds. Its revenue guidance for 2026 calls for $670 million to $690 million, with adjusted EBITDA ranging from $150 million to $155 million.

The shares tell a different story. Following a sector sell-off, they were trading around $11 to $12, or roughly 40% below their IPO price, while second-quarter net loss of $154 million reflected IPO-related stock compensation. That said, analyst firms are bullish, with Guggenheim naming it a top defense pick with a $30 target earlier in September, and most other. Read why Guggenheim considers it a top defense bet.

3. Mineralys Therapeutics, Inc. (NASDAQ:MLYS)

Share Price as of October 23: $20.55

Analyst Upside: 132.88%

Target Price: $47.86

Number of Hedge Fund Holders: 60

Mineralys Therapeutics, Inc. is a pre-revenue biotech whose growth case rests on one decision regarding Lorundrostat, which is expected to be ruled on by the FDA by December 22. The application followed five successful trials, and the company has formed a launch team and engaged payers who cover the majority of US lives. As of June 30, cash and investments totaled $661.4 million, enough to sustain operations through 2028, with a $500 million debt facility adding up to $400 million more on approval and commercial milestones. The company also erased its royalty obligation to Tanabe, increasing its second-quarter loss to $241.1 million.

Competition is the primary concern. AstraZeneca’s baxdrostat, known as Baxfendy, was approved in May and is already on the market, which means Mineralys will not be the first in its class. Label discussions with the FDA are planned in October and November, and the final label will determine how the drug is differentiated. Management cites its own market research, which shows a 2-to-1 physician preference over baxdrostat. Bank of America rates the stock as a Buy, with a $51 target. See why lorundrostat is gaining attention at the firm.

2. Pony AI (NASDAQ:PONY)

Share Price as of October 23: $5.14

Analyst Upside: 162.65%

Target Price: $13.50

Number of Hedge Fund Holders: 20

Pony AI is a Chinese autonomous-driving company developing robotaxi, robotruck, and autonomous-mobility technology. The company is one of the more speculative small-cap AI names on this list, but Wall Street’s conviction is notably high in comparison to its stock price. Pony AI’s valuation metrics have compressed significantly to a market cap of $2.13 billion and an EV-to-Revenue multiple of 13.94x, with a market capitalization of $2.13 billion and an EV-to-Revenue multiple of 13.94x. The company is set to announce Q3 2026 earnings on November 18, making it the next major catalyst for investors deciding whether commercialization is accelerating.

The bull case hinges on Pony AI’s position in autonomous driving as robotaxi deployment expands in China. The company’s technology platform could be worth more if it can increase the number of paid trips, reduce operating costs per vehicle and secure more city permits and partnerships. The risks are just as great. Pony AI is still in the early stages of commercialization and economics of autonomous driving are dependent on regulatory approval, fleet utilization, safety performance, capital intensity and competition from larger technology and automotive companies. The wide gap between stock price and analyst targets reflects the magnitude of the perceived opportunity and the uncertainty surrounding execution.

Insider Monkey has more on the company’s expansion strategy, including BofA’s take on Pony AI’s robotaxi expansion.

1. AEVEX Corp. (NYSE:AVEX)

Share Price as of October 23: $10.83

Analyst Upside: 167.77%

Target Price: $29.00

Number of Hedge Fund Holders: 28

AEVEX Corp. develops unmanned aerial and surface systems for the US military and its allies. The company’s second-quarter revenue nearly doubled to $201.8 million, while adjusted EBITDA rose to $28.1 million from $3.6 million, and the company turning profitable. AEVEX raised its 2026 guidance to $700 million to $720 million in revenue, with adjusted EBITDA ranging from $105 million to $111.5. That excludes BlackSea Technologies, a $650 million acquisition that closed on September 8 and one that is expected to bring around $150 million of 2026 revenue.

The shares tell a different story. Following a sector sell-off, they are trading around $11 to $12, or roughly 40% below their IPO price, while second-quarter net loss of $154 million reflected IPO-related stock compensation. That said, analyst firms are bullish, with Guggenheim naming it a top defense pick with a $30 target earlier in September, and most other. Learn why Guggenheim considers it a top defense bet here.

This is the most volatile stock on the list. Shares plunged 32% the past week to a record low of $9.64 after Bloomberg reported that the Navy had ceased ordering BlackSea’s GARC drone boat. They gained 13% the next day after AEVEX stated that no orders had been stopped and that the report was inaccurate. Guidance also predicts second-half revenue of around $291 million, compared to $418 million in the first half. Analysts are split: Oppenheimer and Jefferies rate the stock a Buy, with targets of $21 and $26, respectively, while Piper Sandler rates it Neutral at $13, citing BlackSea’s pipeline after mid-2027. We also discussed whether growth was outrunning dilution previously.

While we acknowledge the risk and potential of AVEX as an investment, we believe certain AI infrastructure stocks offer far stronger long-term potential at a much more attractive entry point. If you are looking for an AI stock more promising than AVEX that operates as a critical AI tollbooth and stands as the most important company in the world, check out our report about this must-own AI stock.

READ NEXT: 33 Stocks That Should Double in 3 Years and 15 Stocks That Will Make You Rich in 10 Years 

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