Here Are 3 Small Cap ASX Stocks To Buy In FY26 And Why You Should Consider Them

As FY26 gets underway, we’ll take a look at some of the top picks for the year ahead, and today we’re looking at Small Cap ASX Stocks To Buy In FY26.

When thinking about small-cap stocks on the ASX, many investors wonder whether there is an opportunity beyond high risk. In our view, growth lurks in themes such as biotech breakthroughs, the AI revolution, and the electrification super-cycle. We are not talking about moonshots here: we are examining three firms grounded in structural tailwinds and credible progress — NeuroScientific Biopharmaceuticals (ASX: NSB), AI-Media Technologies (ASX: AIM) and Xanadu Mines (ASX: XAM).

 

3 Small Cap ASX Stocks To Buy In FY26

 

NeuroScientific Biopharmaceuticals (NSB)

NeuroScientific Biopharmaceuticals has quietly positioned itself at the cutting edge of stem-cell therapy with its acquisition of StemSmart™ from Isopogen WA. That technology, now in NSB’s hands following an A$3.5 million capital raise, taps into a burgeoning field.

StemSmart is currently being trialled in a Special Access Programme for fistulising Crohn’s disease, a notoriously difficult-to-treat condition. Earlier trials involving intravenous MSC therapy produced preliminary results suggesting positive clinical outcomes, including symptom improvement, with no serious adverse events reported. That success underpinned NSB’s decision to roll out special-access treatments immediately, with plans for further trials in inflammatory and neurodegenerative conditions.

What is compelling is the size of the potential market: analyst forecasts place the global Crohn’s disease treatment market at approximately US$10–12 billion between 2025 and 2033. The total pulmonary-drug market (not MSC-specific) may reach ~US$30 billion by 2034, but the MSC-therapy segment is projected at only US$0.68 billion by that time. That represents a meaningful opportunity, especially if NSB can navigate regulatory pathways and deliver robust trial outcomes.

Yet caution is vital. NSB remains pre-revenue, dependent on trial success and regulatory momentum. Any clinical setback could significantly affect investor sentiment. Still, for those seeking high-risk, high-reward biotech exposure, NSB offers a rare MSC play with credible science behind it.

 

AI-Media Technologies (AIM)

AI-Media was once known for live human captioning, but today it is pivoting sharply to AI-powered SaaS. The Lexi suite – encompassing Lexi Captions, Lexi Voice and Lexi Brew – is rapidly becoming the engine behind the company’s transformation.

According to the latest public reports, AI-Media continues to grow its technology segment, offsetting a fall in services revenue, while hardware sales have also risen alongside increased encoder deployments. The company reports improving gross margins and maintains a strong cash position. LEXI usage has reportedly grown strongly, but exact annualised growth figures for usage and minutes processed have not been publicly released. Each encoder now equates to aroundUS$50,0000 in lifetime value thanks to bundled SaaS.

Global expansion remains a priority: AIM keeps extending its international footprint. However, the path ahead demands flawless execution. Expansion into Europe and Asia, while promising, requires navigating customer, regulatory and technical challenges. As AIM scales, competition in AI live-streaming, captioning and voice-to-text grows fiercer. Still, with rising gross margins, solid cash reserves and an accelerating shift to SaaS, AIM appears to be making steady headway.

 

Xanadu Mines (XAM)

Xanadu Mines, headquartered in Sydney and focused on Mongolia’s Kharmagtai project, has emerged as one of the more advanced small-cap explorers on the ASX. The October 2024 Pre-Feasibility Study (PFS) outlined a 29-year mine life with annual production estimates of 60–80 kt copper and 165–170 koz gold. While key financial metrics such as NPV and IRR are believed to be strong, they have not yet been publicly disclosed in full detail.

Equally significant is its strategic partnership with Chinese miner Zijin Mining. Zijin has injected US$35 million, forming a 50:50 joint venture called Khuiten Metals and now holds operatorship following PFS completion. That alliance offers capital, local credibility and streamlined access to feasibility and development execution.

The next leg for XAM depends on a successful bankable feasibility study (due mid-2026), construction financing and eventual take-off toward a final investment decision. Copper’s importance in electrification, coupled with Zijin’s commitment, provides confidence. Nonetheless, risks remain: commodity-price volatility, geopolitical policy shifts in Mongolia, and large-scale funding challenges must be managed carefully.

 

Macro Trends Make Small Caps Attractive in 2025

Looking across these three stories, several macro-level forces give us confidence:

• RBA rate-cut cycle – The Reserve Bank delivered its first cut on 18 February 2025, trimming the cash rate to 4.10 %, and followed with a second cut to 3.85 % on 20 May 2025; easing cycles typically lift small-cap performance as funding conditions improve.
• Valuation reset – Small-cap valuations remain under pressure, setting the stage for catch-up against large-cap peers.
• Structural themes – Our trio taps into long-wave trends: regenerative medicine, AI as infrastructure and electrification-driven metals demand.

We believe small-cap investors should balance ambitious potential with measured risk. That means modest position sizes, likely around 2–4 % in balanced portfolios, and disciplined monitoring of catalysts.

 

Navigating Risks and Milestones

For NSB, every clinical outcome matters – research data, regulator engagement, patient access and upcoming trial results. AIM’s momentum depends on tech-margin growth, SaaS revenue and scaling in new geographies. Xanadu’s story is progressing through its PFS execution, JV funding, commodity pricing and political environment.

Fundamentally, each of these names still faces an inflection point, whether it is positive phase-2 data, SaaS targets achieved or construction funding secured. Volatility remains; investors should be prepared for sharp price swings.

 

Conclusion

We believe these three small-caps collectively provide accessible exposure to emerging themes: NSB with its next-generation MSC biotech, AIM as a SaaS-first AI-media company and XAM as a foreseeable copper-gold mine tied to the energy transition.

These businesses are not speculative penny stocks; they are grounded in deliverable catalysts and major market opportunities. Although these factors do not eliminate risk, they may make these stocks appealing for investors seeking thematic growth.

 

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips

 

FAQs

• Are small-cap ASX stocks suitable for long-term investment?

  Yes. Small-cap ASX stocks can be ideal for long-term investors willing to accept higher volatility in exchange for greater growth potential. Companies such as NSB, AIM and XAM are early in their life cycle yet sit within major structural trends – biotech innovation, AI-enabled services and global electrification – which may reward patient holders over time.

• How do small-cap stocks typically perform during interest-rate cuts?

  Historically, small-cap stocks outperform during periods of monetary easing, as lower interest rates reduce the cost of capital and improve funding access. The Reserve Bank of Australia has already begun easing, cutting in February and May 2025, which could continue to act as a tailwind for growth-oriented small-caps.

• What are the key risks of investing in early-stage biotech stocks such as NSB?

  Biotech companies like NeuroScientific Biopharmaceuticals rely heavily on trial outcomes, regulatory approvals and external funding. If clinical data is delayed or fails to meet endpoints, the stock can fall sharply. Investors must track announcements closely and size positions accordingly.

• Why is AI-Media’s shift to SaaS significant for investors?

  SaaS (Software as a Service) models typically deliver recurring revenue, higher margins and scalable growth. AI-Media’s transition from labour-heavy captioning services to AI-powered solutions such as Lexi allows for stronger profitability and global expansion, offering better long-term earnings visibility.

• How does commodity-price volatility affect a company like Xanadu Mines?

  Xanadu Mines is exposed to fluctuations in copper and gold prices, which directly impact project economics and valuation. While long-term trends favour copper demand, short-term price drops or geopolitical disruptions in Mongolia could affect feasibility or delay development plans.