This Tiny AI Infrastructure Stock Has Large-Cap Potential

Finding tiny AI stocks can be lucrative. These stocks can move quickly upon securing hyperscalers as customers, and multi-year tailwinds can keep the momentum going.

Eos Energy Enterprises (NASDAQ: EOSE) may be one of those stocks, if investors can be patient. Investors got ahead of themselves last year, with the stock price jumping from $4 to nearly $20 in less than six months. Shares have crashed since then, but Eos Energy Enterprises' long-term importance in the AI build-out has grown. Here's what investors should know.

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Where Eos Energy Enterprises fits into the AI puzzle

Eos Energy Enterprises is a $1 billion company that addresses the energy bottleneck. Its zinc-powered battery systems are considered a viable alternative to lithium-ion batteries. A zinc battery solves the fire safety concerns of lithium-ion batteries, is more durable, and doesn't require active cooling.

In other words, zinc batteries are more effective than lithium-ion batteries. The main obstacles are that lithium-ion batteries have been tested and scaled for decades, while zinc batteries are new technology. That makes large-scale zinc build-outs more expensive and less proven, but positive results are coming in for this technology. In the long run, zinc batteries should be cheaper than lithium-ion batteries.

It explains why every data center hasn't made the pivot to zinc batteries yet, but it also outlines Eos Energy Enterprises' potential. The company continues to enhance its zinc battery technology and scale up its production volume, and those efforts can translate into attractive long-term gains.

Hyperscalers are already interested

Eos Energy Enterprises isn't a science project. It has an $807 million backlog, up 25% sequentially in the second quarter, that comes from customers like the U.S. Department of Defense (which the Trump Administration has rebranded as the Department of War) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).

As companies like Palantir (NASDAQ: PLTR) have demonstrated, the government is one of the best customers you can have. Furthermore, if the Alphabet deal goes well, it could attract the attention of other hyperscalers. Eos Energy Enterprises told shareholders that it secured orders from four new customers and two repeat customers.

Revenue surged by 351% year over year to reach $68.8 million in Q2. The company expanded its manufacturing capacity with its Thorn Hill site to address rising demand for its zinc batteries. That move should be finalized in the first quarter of 2027 and enable Eos Energy Enterprises to serve more customers and produce higher order volumes.

Navigating the messy middle

Although Eos Energy Enterprises produces critical technology, there is a messy middle between the company's $1 billion valuation and its large-cap potential. Some of it is fundamental, but most of it concerns dilution.

Eos Energy Enterprises produced an $83.8 million net operating loss in Q2, which was worse than the $63.8 million net loss in the same quarter last year. While the operating margin improved due to soaring revenue, the company is still burning through cash.

Furthermore, guidance implied $300 million to $350 million in full-year revenue, compared to a prior range of $300 million to $400 million. The company cited a timing issue with consolidating its production lines into a single manufacturing blueprint. That makes the tightened guidance look like a short-term concern, but it is worth monitoring.

Government loans have helped Eos Energy Enterprises amass a $364.1 million cash position, which offers some cushioning as the company pivots to profitability.

Dilution is the bigger concern. Eos Energy Enterprises filed a registration statement for the potential resale of up to 56.5 million shares by existing shareholders. It's a dilutive event tied to warrants that will not raise any additional funds for the company. That represents more than 10% of the stock's market cap.

It includes more than 3 million shares at $5.481, with those warrants expiring in 2036. It also includes 34 million warrants issued in 2023 that have an exercise price of $1.60 per share. These warrants expire in 2028, and this dilutive pressure can silently reduce investors' stakes in the company.

Eos Energy Enterprises has strengthening fundamentals that may override dilutive concerns if you look five to 10 years out. However, it is a meaningful risk that can weigh on the stock. This AI stock is worth keeping on your radar, as it has multi-bagger potential, but it may be better to wait for the dilutive dust to settle, especially from the warrants that expire in 2028. Meaningful fundamental progress, especially with margins, can justify entering the stock before then.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Palantir Technologies. The Motley Fool has a disclosure policy.