Small Caps, Big Potential: How Tiny Stocks Can Supercharge Your Portfolio
Small-cap stocks have been making waves recently, catching the attention of investors looking for the next big opportunity. So, what exactly are small caps? Simply put, they’re companies with smaller market capitalizations – usually between $300 million and $2 billion. These aren’t the heavyweights like Apple (NASD: AAPL) or Microsoft (NASD: MSFT), but they tend to be younger, faster-growing firms such as Indie Semiconductors (NASD: INDI), a maker of chips used in car components, and Kraken Robotics (TSE: PNG), which produces underwater sensors and robotics. Others operate in niche industries, like Pulse Seismic (TSE: PSD), the go-to company for seismic data in Western Canada. After acquiring the top dog in this niche market in 2019, PSD now owns the largest library of licensable 2D and 3D seismic data in the region, making it the top commercial provider for energy companies exploring or developing projects.
Think of it like owning the “map” everyone in the region needs. While other smaller companies exist, PSD’s scale and coverage give it a near-monopoly on the data most energy companies rely on, making it a dominant player in its niche. For investors, that means PSD isn’t just another small-cap company; it’s a company with a highly defensible market position, or strong moat.
The appeal of small caps is clear: they can deliver outsized growth. If a small company’s product or service takes off, the stock has far more room to run compared to a mature giant. That’s why small caps are often seen as engines of innovation and potential wealth builders in a portfolio.
Of course, higher reward comes with higher risk. Small-cap stocks tend to be more volatile, swinging up and down faster than their large-cap counterparts. They don’t trade as frequently as medium, large, or mega-cap companies—mainly because they’re less well known and considered too risky for big institutions until they prove themselves. They’re also more sensitive to changes in interest rates, economic cycles, or even a single disappointing earnings report. For new investors, that kind of turbulence can feel like a roller coaster ride.
One way to approach small caps is with patience and discipline. Instead of jumping in with a big buy, consider starting small: buy a few shares to establish a position, then add more over time as you become more familiar with the company and it proves itself with consistent growth and strong earnings. This way, you’re not just betting on potential – you’re letting the company earn your confidence.
This is exactly what I’ve done with INDI, PNG, and PSD – taking an initial position and letting them prove themselves. PSD has done well, up a total of 95% over the three years I’ve been an owner, helped by regular and special dividends. Kraken is up 36% since I invested in January 2025. On the other hand, INDI has fallen almost 50% in the two years since I became an owner. There are other small caps across my three portfolios, but these three provide a clear example of both the growth potential and the risks of small cap investing.
Small-cap stocks really are like swinging for the fences – thrilling when you connect, but risky when you miss. They can add energy and excitement to a portfolio, but they’re only part of the game. The market story doesn’t end with the little guys; the heavy hitters also step up to the plate and often set the tone for where things head next. With that in mind, let’s see what happened this past week….
Items that may only interest or educate me ….
The Earnings Report That Moved the Markets, Canadian Economic news, US Economic news, ….
The Earnings Report That Moved the Markets
After starting off talking about small-cap stocks, let’s flip to the other extreme – the world’s largest company. It’s a bit like baseball: after a string of off-speed pitches, here comes the blazing fastball. Gotta keep you on your toes. 😊
This week, Nvidia (NASD: NVDA), the world’s most valuable company with a market cap north of US$4 trillion, released its second-quarter earnings. This wasn’t just another update; it was arguably the most watched event of the week. Why? Because Nvidia makes up about 8% of the S&P 500, so when it moves, millions of accounts and index funds move with it. Put simply: if Nvidia sneezes, millions of investors feel it.
Nvidia sits at the centre of the artificial intelligence (AI) boom, and investors saw this report as a test of whether the AI rally still has legs. The company has soared to record highs, but trade tensions with China have started to cloud its outlook. In many ways, Nvidia’s earnings have become a barometer for the entire AI story – fueling excitement or cooling the hype.
On paper, Nvidia’s results looked impressive: revenue jumped 56% year over year, and profits beat analyst expectations. Yet data centre sales came in just below forecasts, which spooked investors. Even with strong overall numbers, concerns over data centre growth and uncertainty around the company’s China business overshadowed the earnings beat. Nvidia’s stock slipped 2–3% in after-hours trading before stabilizing on Thursday, but by Friday’s close, shares had fallen 4% following the earnings release. The downdraft also weighed on other AI and chip companies, including AMD (NASD: AMD) and Broadcom (NASD: AVGO). It’s a reminder that when expectations are sky-high, even a small miss can rattle markets.
There was also some headline-grabbing news outside of earnings. Nvidia announced a massive US$60 billion stock buyback, on top of the US$24.3 billion already returned this year through share repurchases and dividends. That’s management’s way of saying they believe in the company’s long-term value.
Bottom line: Nvidia is still delivering explosive growth, but the bar is so high that “good” results aren’t always enough anymore. Add in the uncertainty around selling its H20 chips to China, and the outlook is less straightforward than it looks on the surface. For investors, the takeaway is clear – even the strongest companies can stumble when expectations run ahead of reality.
Canadian Economic news
This past week’s key economic data that the Bank of Canada (BoC) considers when deciding whether to raise or lower the interest rate.
Gross Domestic Product (GDP)
Statistics Canada revealed Canada’s economy stumbled in the second quarter, with GDP slipping 0.4% from the first quarter. Annualized, that works out to a 1.6% contraction — the sharpest pullback in nearly two years. The two numbers can look confusing, but here’s the difference: the quarter-over-quarter figure shows what actually happened, while the annualized rate simply projects that one-quarter trend over a full year.
The main culprit was a steep drop in exports, which plunged nearly 7.5% — their worst slide in five years. US tariffs on key Canadian industries like automobiles, steel, and aluminum hit especially hard, with passenger vehicle exports alone down almost 25%. Business investment also softened, particularly in machinery and equipment, which slipped for the first time since the pandemic.
On the brighter side, consumer spending remained strong, climbing 4.5%, while housing activity and government spending also picked up, helping cushion the blow.
On a monthly basis, GDP shrank 0.1% in June, following similar declines in April and May. This marks three consecutive monthly drops, a streak not seen since late 2022. Analysts had been expecting a small gain of 0.1%. Goods-producing industries took the biggest hit, largely due to US tariffs, slipping 0.5%, with manufacturing alone falling 1.5%. Meanwhile, services held steady, rising 0.1%, supported by retail, real estate, wholesale trade, and construction.
Overall, the quarterly and monthly reports highlight how exposed Canada’s economy remains to American trade policy. With exports tumbling and business investment slowing, the odds of a BoC rate cut in September seem higher — especially with inflation continuing to trend lower.
Canadian Market Volatility
Canada’s volatility gauge, the S&P/TSX 60 Volatility Index (VIXC), opened this past week at 9.14 and mostly stayed between 8.5 and 9.5 – until Friday, when it spiked above 10.5 before dropping to close the week at 9.84. The jump likely reflected a combination of shrinking GDP news, higher federal government debt, and turbulence in US markets, which unsettled investors.
Think of the VIXC as a “fear gauge” for the Canadian stock market. When investors feel nervous, often due to uncertainty or sudden news, the index ticks higher. Lower numbers, like where it finished the week, signal calmer sentiment. For anyone new to investing, it’s a useful snapshot of how the market is feeling.
US Economic news
This past week’s key data points that the Federal Reserve (Fed) considers when deciding whether to raise or lower the interest rate.
Consumer Confidence Index (CCI)
The Conference Board’s Consumer Confidence Index (CCI) for August came in at 97.4, down slightly from July’s revised 98.7 but still a touch better than the 96.4 analysts were expecting. In other words, confidence cooled a little, but it’s still moving within the same range we’ve seen for months.
Digging deeper, the Present Situation Index – which captures how people feel about today’s business and job market – slipped to 131.2, pointing to a modest pullback in how consumers perceive their conditions right now. The Expectations Index, which measures how consumers see the next six months, also dipped to 74.8. That’s important because anything below 80 is often viewed as a warning sign, hinting that people are nervous about income, hiring, and business prospects.
The softer numbers aren’t too surprising given the recent slowdown in the labour market, highlighted by the sharp drop in jobs added over the past few months. While consumer confidence hasn’t fallen off a cliff, it’s clearly showing some strain. In fact, confidence is now sitting at its lowest level since early 2021, with mounting concerns about the job market and tariffs weighing on sentiment. For investors, this matters because when consumers feel less confident, they tend to spend less – and weaker spending can ripple through the broader economy.
Gross Domestic Product (GDP)
The Commerce Department’s Bureau of Economic Analysis (BEA) reported that the US economy grew faster than expected in the second quarter. In its second estimate, GDP rose at an annualized 3.3%, up from July’s 3.0% reading and ahead of analysts’ 3.1% forecast. That’s a solid rebound considering the economy had actually contracted 0.5% earlier in the year.
The gain was primarily driven by a drop in imports. Since imports are treated as a subtraction in the GDP formula, fewer of them gave the numbers a boost. Consumer spending also chipped in, with Americans still spending despite higher borrowing costs.
For investors, the message is clear: the economy remains sturdier than many expected. That gives the Fed room to take its time on interest rate cuts, but it also means they’ll be careful not to let inflation flare back up.
Personal Consumption Expenditures (PCE)
The BEA’s July PCE report showed that inflation remained steady. The headline PCE, which tracks all items, rose 0.2% month-over-month, down slightly from June’s 0.3% gain. On a year-over-year basis, inflation held at 2.6%, in line with expectations.
Looking at core PCE, which excludes the more volatile food and energy prices, monthly growth came in at 0.3%, matching June, while annual core inflation ticked up slightly to 2.9%, compared with 2.8% in June.
Even with the slight rise in core inflation, many analysts and investors expect the Fed to move forward with a rate cut in September. For consumers, that could mean cheaper borrowing costs, while for us investors, it could be a potential boost for the markets.
Consumer Sentiment Index (CSI)
Consumer sentiment in the US declined in August, with the University of Michigan’s CSI falling to 58.2, down from 61.7 in July. That’s a 5.7% drop from the previous month and a 14.3% decline compared to August 2024.
The decline was broad-based, affecting people of all ages, income levels, and stock wealth. The Current Economic Conditions Index, which reflects how people feel about their present situation, including job security and personal finances, fell to 61.7 from 68.0, a drop of 9.3% month over month but an increase of 0.7% from a year ago. Meanwhile, the Expectations Index, looking six months ahead, dipped to 55.9 from 57.7, a 3.1% monthly decline and down 22.5% year-over-year, highlighting growing concerns about the economic outlook.
Inflation expectations also edged higher, with consumers expecting a 4.8% increase in prices over the next year, up from 4.5% in July. Long-term expectations rose slightly to 3.5% from 3.4%.
August’s drop in consumer sentiment shows that people are feeling more cautious about the economy. When consumers pull back on spending, it can slow overall economic growth, since spending drives roughly two-thirds of GDP. For investors, that means companies relying heavily on consumer purchases, like retail, travel, and discretionary goods, could face headwinds, while more defensive sectors, such as healthcare and utilities, may hold up better. The slight rise in inflation expectations also keeps the Fed’s rate decision in play. Overall, a dip in confidence doesn’t spell disaster, but it’s a signal to watch how spending trends evolve in the months ahead.
American Market Volatility
The CBOE Volatility Index (VIX), often called the “fear gauge” for US stocks, opened the week at 15.05 and mostly moved between 14.50 and 15.00 before finishing the week at 15.36. Early in the week, optimism from stronger-than-expected GDP growth and Nvidia’s solid earnings kept volatility lower. However, the release of July’s PCE inflation data late in the week added a layer of uncertainty, leaving investors unsure about the Fed’s next moves.
Overall, the week’s VIX movements reflect the market balancing optimism over growth and AI-driven earnings with nervousness about inflation, Fed policy, and geopolitical developments.
For anyone new to the VIX, it’s a handy snapshot of how jittery, or calm, the US market feels. Readings between 12 and 20 indicate relatively calm conditions, while levels above 20 suggest traders are bracing for rougher waters. The higher it climbs, the more uncertainty is being priced into markets.
Weekly Market and Portfolio Review
For the week, the TSX (SPTSX) gained 0.8%, the S&P 500 (SPX) slipped 0.1%, the DJIA (INDU) and Nasdaq (CCMP) both fell 0.2%.
| Index | Weekly Streak |
| TSX: | 4 – week winning streak |
| S&P: | 1 – week losing streak |
| DJIA: | 1 – week losing streak |
| Nasdaq: | 2 – week losing streak |
Following Fed Chair Powell’s hint at a possible September rate cut the previous week, investors came into this week with high expectations. That optimism cooled over the weekend as investors dialed back their rate-cut hopes and rotated out of high-growth tech into more undervalued sectors. Still, momentum returned as the week went on. On Thursday, it looked like all four major indexes would finish higher, with the Toronto Stock Exchange Composite Index (TSX), the S&P 500 Index (S&P), and the Dow Jones Industrial Average (DJIA) all setting fresh record highs during the week, and the Nasdaq just shy of its peak. However, that changed drastically on Friday, with all three US indexes falling into the red, as you can see in the weekly progress chart above.
Driving the US markets was a mix of economic data and Nvidia’s headline earnings. The second-quarter GDP revision came in stronger than expected, supported by resilient consumer spending and a drop in imports. That bolstered confidence that the economy remains on solid footing. On the downside, July’s PCE inflation data showed the Fed’s preferred measure of inflation edging slightly higher, while August consumer sentiment tumbled to its lowest level in over a year. Together, the reports reminded investors that inflation remains sticky, and households are growing more cautious.
Earnings-wise, Nvidia stole the spotlight. As the poster child of the AI boom, its second-quarter results were viewed as a key test of whether enthusiasm for AI stocks could endure. The company beat on both revenue and profit, driven by booming demand for AI infrastructure. Still, concerns about slower data-centre growth and uncertainty in China briefly rattled investors, pushing the stock lower in after-hours trading before shares quickly stabilized on the overall strength of the report.
Trade tensions also resurfaced. President Trump imposed 50% tariffs on Indian products in response to its purchases of Russian oil and threatened the European Union over new rules regulating online platforms, arguing they unfairly target American tech giants like Apple and Google (NASD: GOOGL).
On a more unusual note, Trump attempted to fire Fed Governor Lisa Cook, the first time a president has ever tried to remove a sitting Fed governor. Surprisingly, markets barely reacted. Although the move sparked questions about the Fed’s independence – and could pave the way for lower rates if Trump succeeds – investors kept their attention on inflation, jobs data, and corporate earnings.
In Canada, the TSX finished the week higher, including setting a new high to end the week, standing out as the only major North American index to post a gain. Earnings from the country’s big six banks lifted sentiment, with most reporting results above expectations, helped by smaller-than-expected loan loss provisions. Their results reassured investors that the financial sector is still healthy despite broader headwinds. Meanwhile, Canada’s second-quarter GDP fell 0.4%, its sharpest drop in nearly two years, weighed down by US tariffs that curbed exports to Canada’s largest trading partner. The contraction reinforced concerns about slowing growth and strengthened the case for a potential BoC rate cut in September.
Overall, last week showed a mix of resilience and caution across North American markets. While Canadian equities managed to edge higher, US indexes slipped by week’s end despite strong earnings and solid economic data earlier in the week. The divergence highlights how markets are being pulled in different directions by domestic fundamentals, policy uncertainty, and global risks.
| Portfolio | Weekly Streak |
| Portfolio 1: | 2 – week losing streak |
| Portfolio 2: | 4 – week winning streak |
| Portfolio 3: | 3 – week losing streak |
Even though the indexes kept pushing higher through Thursday, many even setting new records, I was a bit surprised to see that my three portfolios weren’t all basking in the green. Portfolio 2 was clearly riding the wave, but Portfolios 1 and 3 were hovering right around the flatline, leaving little margin for error heading into Friday. When I woke up and saw the American indexes dipping into the red, I had a feeling those two portfolios were destined to finish lower. And sure enough, that’s exactly how the week wrapped up, as you can see in the weekly performance chart below. ☹
Portfolio 1 dropped 0.6%, mainly due to Nvidia’s 4% slide—no small impact given the stock makes up nearly 25% of the portfolio. Thankfully, 56% of holdings finished higher, with Google and Cameco (TSE: CCO) both setting record highs to help soften the hit. A welcome surprise came when Interactive Brokers (NASD: IBKR) was added to the S&P, replacing Walgreens Boots Alliance (NASD: WBA), which was taken private. The announcement sent IBKR’s stock up 5% in after-hours trading, further offsetting Nvidia’s pullback.
Portfolio 2 was the star of the week, surging 4.8% despite just 51% of its holdings closing higher. The heavy lifting came almost entirely from MongoDB (NASD: MDB), which skyrocketed 44% after reporting a 24% year-over-year jump in second-quarter revenue. One stock carrying the entire team – sometimes that’s all it takes. 😊
Portfolio 3 had the toughest stretch, dropping a full 1% and posting the lowest percentage of winners (45%) among its holdings. With its two biggest positions pulling back, the outcome wasn’t surprising. Still, there was a silver lining: Royal Bank of Canada (TSE: RY) hit an all-time high after beating earnings expectations, showing that even in a down week, there are bright spots worth celebrating.
All told, it was a choppy week across my three portfolios, much like the broader markets where heavyweight Nvidia took some wind out of the sails. But with companies like Interactive Brokers, MongoDB, and Royal Bank of Canada delivering solid results, it’s a good reminder that even in down weeks, strong businesses keep finding ways to move forward — and that’s what keeps me optimistic.
Companies on the Radar
This past week, two more companies popped up on my radar – Palo Alto Networks (NASD: PANW) and Fiserv (NYSE: FI). Both are big US companies in the technology space, though they operate in very different corners of it.
Palo Alto Networks is a cybersecurity powerhouse, offering firewalls, cloud security, and AI-driven tools to more than 70,000 organizations worldwide. It’s seen as a key play on AI-powered cybersecurity and is also benefitting from rising federal spending in this area. The stock can be volatile, but it’s been riding strong AI and cybersecurity tailwinds.
Fiserv, on the other hand, sits in the financial technology world. It provides the behind-the-scenes tech that banks, merchants, and financial institutions rely on, and it’s expanding its reach internationally. The stock has been under pressure, down about 40% since March 3, which could make it look like a potential “buy low” opportunity for long-term investors.
With these two additions, my radar list now sits at seven companies, including the five holdovers from last week. It’s starting to get a little crowded, so I’ll likely be trimming things down for next week’s update.
- Mainstreet Equity Corp. (TSE: MEQ): a Calgary-based real estate company focused on mid-market apartment buildings – typically under 100 units – across Western Canada. It buys underperforming properties at below-market prices, renovates them, and increases rental income through improved operations. With strong demand for rental housing, a repeatable value-add strategy, and a solid balance sheet, Mainstreet offers a compelling mix of income and growth. Shares currently trade below net asset value, giving investors a margin of safety alongside steady cash flow and long-term upside.
- Arista Networks (NYSE: ANET): an American company that designs and sells advanced networking hardware and software, with a focus on high-speed, low-latency switches for its key markets: data centres, AI, cloud computing, and financial trading. The company has been riding the AI tailwind with solid demand from its core markets, especially in AI and cloud data centres. It also has a hefty share buyback program and increasing investments from some of the top institutional investment companies.
- Secure Energy Services (TSE: SES): a Canadian industrial company that focuses on environmental and waste management services for energy and industrial clients. It offers recycling, disposal, and infrastructure support across North America.
- Corning Incorporated (NYSE: GLW): a large cap American company that is a leader in specialty glass, optical fiber, environmental technology, life sciences, and other specialty glasses. They have been the supplier of the glass used in Apple’s iPhones since 2007, and they are riding the tailwind of an AI-driven fiber optic boom.
- Copart (NASD: CPRT): this American company runs one of the world’s largest online vehicle auction platforms, specializing in salvaging cars from accidents and natural disasters. It sells on behalf of insurers, dealerships, rental companies, and individuals. Copart earns revenue through transaction fees, storage, transportation, and listing services. Its digital model, global buyer network, and asset-light approach support strong margins and steady growth. With no long-term debt and rising tailwinds from vehicle values and insurance claims, it’s a steady growth story that’s earned a spot on my radar.
As always, these are not buy recommendations. Make sure to do your own research and choose investments that fit your personal financial goals.
The Radar Check was last updated August 29, 2025.
That’s a wrap for this week, thanks for reading – may your portfolio stay green and your dividends steady. See you next time!