12 Best Small Cap Tech Stocks To Buy
In this article, we discuss 12 best small cap tech stocks to buy. If you want to skip our detailed discussion on the tech industry, head directly to 5 Best Small Cap Tech Stocks To Buy.
The tech industry experienced significant fluctuations during the pandemic, with strong performance in 2020 to 2021 but facing stock market declines in 2022. In 2023, tech companies continue to face challenges related to economic uncertainty, supply chains, workforce, and innovation. In the past five years, AI adoption has been driven by cost savings and gaining a competitive advantage. AI integration into user-facing applications has been subtle, leading to increased user counts and platform traffic. However, in early 2023, AI has gained significant attention and become a focal point for marketing. Despite this, RSM data indicates that private equity investment in emerging tech, particularly AI, remains low. Innovative AI companies often attract interest from large corporate buyers who incorporate their technology into existing services or scale it for larger markets. Microsoft CEO Satya Nadella describes the current generation of AI as "autopilot" dictating attention through recommendations in search engines, social media, and streaming services. The next generation of AI, according to Nadella, will be a "copilot" that can be programmed using natural language, providing easier access to the software's capabilities for all users.
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According to JPMorgan's “Business Leaders Outlook Survey” conducted between November 29 and December 13, 2022,in which 265 midsize tech industry respondents expressed their views, majority of tech leaders were optimistic about the global (57%), national (58%), and local (63%) economies, significantly higher than leaders from midsize American businesses in general. Additionally, 77% were optimistic about their industry's performance in 2023, with 85% expressing optimism about their own company's performance. 84% of tech leaders anticipated increases in revenue/sales, and 73% expected growth in profits. Despite their positive outlook, tech leaders also expect challenges ahead. 55% of the candidates forecasted a recession in 2023. 76% were already feeling the effects of inflation, and nearly half had experienced worsening supply chain issues over the past year. To address these pressures, 51% of tech leaders were primarily focusing on raising prices and 43% were looking to increase automation. However, these challenges don't seem to hinder growth plans, as 84% of tech leaders intend to hire or retain employees in 2023. Approximately half of the respondents are coping with the tight labor market by offering employees flexibility in terms of where and when they work.
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McKinsey observed that investment in most tech trends tightened compared to previous years in 2022, but there is still high potential for future growth, evident from the recent rebound in tech valuations. The total investment in tech exceeded $1 trillion, reflecting strong confidence in the field. Trust architectures and digital identity experienced the most remarkable growth among the 14 technology trends, increasing by nearly 50% as security, privacy, and resilience became crucial across industries. On the other hand, investment in other trends like applied AI, advanced connectivity, and cloud and edge computing declined, likely due to their maturity.
To benefit from the explosive growth potential in tech, some of the best stocks that come to mind include Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Meta Platforms, Inc. (NASDAQ:META). However, in this article, we discuss the best small-cap tech stocks to buy.
Our Methodology
We first used a stock screener to filter out technology stocks with market caps ranging from $300 million to $2 billion as of July 28. From these stocks we picked 10 stocks with the highest number of hedge fund investors. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the first quarter of 2023. The list is arranged in ascending order of the number of hedge fund holders in each firm.
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Best Small Cap Tech Stocks To Buy
12. Agilysys, Inc. (NASDAQ:AGYS)
Number of Hedge Fund Holders: 23
Agilysys, Inc. (NASDAQ:AGYS) develops and sells hardware and software products and services to the hospitality industry. The company provides solutions like point of sale systems, property management, inventory and procurement, payments, activity scheduling, and reservations management to improve the guest experience.
On July 24, Agilysys, Inc. (NASDAQ:AGYS) reported a FQ1'24 non-GAAP EPS of $0.18 and a revenue of $56.1 million, outperforming Wall Street estimates by $0.04 and $1.21 million, respectively. The company reaffirmed its guidance for fiscal year 2024, expecting revenue to be between $230 to $235 million, compared to the consensus estimate of $233.58 million. The guidance includes a 25% year-over-year growth in subscription revenue and an adjusted EBITDA of 13% of the total revenue for the entire fiscal year.
According to Insider Monkey’s first quarter database, Agilysys, Inc. (NASDAQ:AGYS) was part of 23 hedge fund portfolios, compared to 19 funds in the earlier quarter. Michael Kaufman’s MAK Capital One is the largest stakeholder of the company, with 3.8 million shares worth $313.20 million.
Like Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Meta Platforms, Inc. (NASDAQ:META), Agilysys, Inc. (NASDAQ:AGYS) is one of the best tech stocks to invest in.
Wasatch Micro Cap Growth—U.S. Strategy made the following comment about Agilysys, Inc. (NASDAQ:AGYS) in its Q4 2022 investor letter:
“Agilysys, Inc. (NASDAQ:AGYS) was the top contributor to strategy performance during the fourth quarter. The company develops application software for point-of-sale, property-management, inventory and procurement applications. Agilysys specializes in the hospitality and retail industries world-wide, and its solutions can be implemented on wireless and mobile devices. The company recently modernized its software, which has proved fortuitous as post-pandemic consumer and business travel has accelerated. On December 15, Agilysys announced an agreement to deploy its cloud-based property-management system software across Marriott’s luxury, premium and select service hotels in the United States and Canada. Beyond the incremental earnings and cash flows related to Marriott, the agreement should help Agilysys win new customers on an ongoing basis.”
11. Model N, Inc. (NYSE:MODN)
Number of Hedge Fund Holders: 24
Model N, Inc. (NYSE:MODN) provides cloud revenue management solutions for life sciences and high-tech companies. Its offerings include management tools such as Global Pricing Management, Global Tender Management, Provider Management, Payer Management, Government Pricing, Medicaid, Deal Management, Channel Management, Market Development Fund Management, Rebates Management, and Channel Data Management.
On July 6, Goldman Sachs analyst Adam Hotchkiss initiated coverage of Model N, Inc. (NYSE:MODN) with a Buy rating and a price target of $45. The analyst mentioned that his rating was based on Model N, Inc. (NYSE:MODN)’s extensive operating experience spanning over two decades, which he referred to as "significant domain expertise", indicating a promising outlook for the company's future.
According to Insider Monkey’s first quarter database, 24 hedge funds were bullish on Model N, Inc. (NYSE:MODN), compared to 20 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is the leading stakeholder of the company, with 400,937 shares worth $13.4 million.
Conestoga Small Cap Strategy made the following comment about Model N, Inc. (NYSE:MODN) in its Q1 2023 investor letter:
“Model N, Inc. (NYSE:MODN): MODN optimizes revenue and compliance for life sciences and high-tech innovators. After being a leader during the fourth quarter, MODN gave back some of its 2022 gains during the first quarter. MODN reported robust fourth quarter results with ARR accelerating to 36% growth, net revenue retention hitting a high of 134% and billings jumping 23%. Despite better-than-expected results, the stock sold off 13% on the earnings report and didn’t recover during the balance of the quarter. We believe the sell-off was related to profit taking and/or future guidance not being raised more aggressively.”
10. Harmonic Inc. (NASDAQ:HLIT)
Number of Hedge Fund Holders: 25
Harmonic Inc. (NASDAQ:HLIT) offers video delivery software, products, system solutions, and services worldwide. The company is divided into two segments – Video and Broadband. Harmonic Inc. (NASDAQ:HLIT) is one of the best technology stocks to invest in. On May 8, the company reported a Q1 non-GAAP EPS of $0.12, beating market consensus by $0.03. However, while the revenue increased 6.9% year-over-year to $157.6 million, it fell short of Street estimates by $0.26 million.
According to Insider Monkey’s first quarter database, 25 hedge funds were bullish on Harmonic Inc. (NASDAQ:HLIT), compared to 27 funds in the prior quarter. Douglas T. Granat’s Trigran Investments is the largest stakeholder of the company, with 8.46 million shares worth $123.5 million.
9. E2open Parent Holdings, Inc. (NYSE:ETWO)
Number of Hedge Fund Holders: 24
E2open Parent Holdings, Inc. (NYSE:ETWO) offers a cloud-based supply chain management platform. The company’s software solutions help optimize supply chains for blue-chip clients by integrating networks, data, and applications for channel shaping, demand sensing, business planning, global trade management, transportation, logistics, collaborative manufacturing, and supply management. E2open Parent Holdings, Inc. (NYSE:ETWO) is one of the best technology stocks to monitor.
On July 10, E2open Parent Holdings, Inc. (NYSE:ETWO) reported a FQ1 non-GAAP EPS of $0.05, in line with market consensus. However, the revenue of $160.12 million slightly missed analysts’ forecasts by $0.5 million. The GAAP subscription revenue for FQ1 came in at $134.9 million, exceeding the upper end of the guidance range. Additionally, the company demonstrated strong cash flow generation during the quarter, achieving an operating cash flow of $36.5 million.
According to Insider Monkey’s first quarter database, 24 hedge funds were bullish on E2open Parent Holdings, Inc. (NYSE:ETWO), compared to 23 funds in the prior quarter. Snehal Amin’s Windacre Partnership is the largest stakeholder of the company, with 28.8 million shares worth $167.5 million.
Here is what Baron Small Cap Fund has to say about E2open Parent Holdings, Inc. (NYSE:ETWO) in its Q1 2021 investor letter:
“E2open Inc. provides a 100% cloud-based software platform to orchestrate complex global supply chains. Its end-to-end SaaS solutions are mission critical. They drive compelling value and ROI for a diverse, blue-chip customer base (including Dell, Peloton, and Boeing) by helping them optimize their supply chains across channel shaping, demand sensing, business planning, logistics, global trade, and supply management.
The market for supply chain management is large ($45 billion-plus market) and has only increased in complexity and importance due to the COVID pandemic. E2open’s deeply embedded products enable strong retention (107% net retention) and long customer relationships (top 100 customers have a 14-year average tenure). Relative to the competition, E2open has devised an elegant and simple solution that is faster and nimbler compared to legacy ERP vendors, and its single interface for all participants compares favorably to the many point solutions out in the market.
E2open is poised to accelerate its organic revenue growth to about 10% in the upcoming fiscal year and maintain a low double-digit level over the medium term. Due to long-term contracts, the company has high visibility into future annual growth, and we expect acceleration will be driven by several factors, including expanding existing customer relationships ($1 billion whitespace alone), winning new customers, optimizing the sales force, getting better pricing realization, and enhancing strategic partnerships. Acquisitions are expected to be the primary use of free cash flow and should supplement the organic growth and provide meaningful synergies once integrated into E2open’s platform. The company has an attractive margin profile (low 30% increasing to high 30%’s adjusted EBITDA margins) paired with strong FCF generation. We believe that E2open will be a steady earnings compounder, which should drive solid returns for the stock over a multi-year period.”
8. Semtech Corporation (NASDAQ:SMTC)
Number of Hedge Fund Holders: 28
Next on our list of the best technology stocks is Semtech Corporation (NASDAQ:SMTC), a semiconductor company that specializes in analog and mixed-signal products, along with advanced algorithms. The company offers signal integrity products for optical data communications, video transport, and industrial applications. Semtech Corporation (NASDAQ:SMTC) also provides integrated circuits for data centers, enterprise networks, optical networks, and high-speed interfaces, as well as video products for broadcast and professional audio video applications.
On June 7, Semtech Corporation (NASDAQ:SMTC) reported a Q1 non-GAAP EPS of $0.02 and a revenue of $236.54 million, outperforming Wall Street forecasts by $0.10 and $1.54 million, respectively.
According to Insider Monkey’s first quarter database, 28 hedge funds were bullish on Semtech Corporation (NASDAQ:SMTC), with combined stakes worth $206.7 million. Didric Cederholm’s Lion Point is the largest stakeholder of the company, with 2.45 million shares worth $59.2 million.
Carillon Tower Advisers made the following comment about Semtech Corporation (NASDAQ:SMTC) in its Q3 2022 investor letter:
“Semtech Corporation (NASDAQ:SMTC) makes mixed-signal and analog semiconductors used across end markets that include computing, communications, and the “Internet of Things” (IoT). The stock sold off significantly after Semtech announced that it plans to acquire an IoT solutions provider in a deal that is expected to add significant scale benefits to the company but also to create a meaningful drag on its margin profile.”
7. Impinj, Inc. (NASDAQ:PI)
Number of Hedge Fund Holders: 28
Impinj, Inc. (NASDAQ:PI) operates a cloud connectivity platform worldwide, connecting individual items and providing data to business and consumer applications. The platform includes endpoint ICs, reader ICs, readers, gateways, and software, enabling use cases like retail self-checkout, package tracking, and more. Impinj, Inc. (NASDAQ:PI) serves multiple sectors, including retail, supply chain, healthcare, and automotive. Impinj, Inc. (NASDAQ:PI) is one of the best technology stocks to invest in.
On July 26, Impinj, Inc. (NASDAQ:PI) reported a Q2 non-GAAP EPS of $0.33 and a revenue of $86 million, outperforming Wall Street estimates by $0.02 and $1 million, respectively.
According to Insider Monkey’s first quarter database, 28 hedge funds were bullish on Impinj, Inc. (NASDAQ:PI), compared to 30 funds in the prior quarter. Daniel Patrick Gibson’s Sylebra Capital Management is the largest stakeholder of the company, with 2.8 million shares worth $386 million.
Wasatch Micro Cap Growth—U.S. Strategy made the following comment about Impinj, Inc. (NASDAQ:PI) in its Q4 2022 investor letter:
“Impinj, Inc. (NASDAQ:PI) was also a contributor. The company, a pioneer in helping develop the Internet of Things, provides an infrastructure by which everyday things such as car parts and even shipment data communicate over the internet. Impinj offers a wireless inventory-management and tracking platform for customers in retail, manufacturing, health care and other areas. Tiny radio-frequency identification (RFID) chips are used to connect, count and track individual items. Because Impinj is heavily reliant on integrated circuits, which were in short supply during the post-pandemic rebound, today’s slowing economy helps reduce this supply-and-demand imbalance, benefiting the company’s profitability. The stock soared when Impinj’s third-quarter earnings report and management’s forward guidance were well received by investors. Given the magnitude of the move in the stock, we sold some of our shares but maintained a healthy position.”
6. Everbridge, Inc. (NASDAQ:EVBG)
Number of Hedge Fund Holders: 28
Everbridge, Inc. (NASDAQ:EVBG) is a software company providing Critical Event Management solutions globally. Their cloud-based platform offers applications for organizations to safeguard business operations, ensure people's resilience, manage digital operations, enhance security, and ensure public safety. On May 9, Everbridge, Inc. (NASDAQ:EVBG) reported a Q1 non-GAAP EPS of $0.25 and a revenue of $108.27 million, outperforming Wall Street estimates by $0.12 and $1.81 million, respectively.
According to Insider Monkey’s first quarter database, 28 hedge funds held stakes worth $229.6 million in Everbridge, Inc. (NASDAQ:EVBG), compared to 27 funds in the prior quarter worth $225.6 million. D E Shaw held the largest position in the company, comprising 1.68 million shares valued at $58.3 million.
In addition to Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Meta Platforms, Inc. (NASDAQ:META), Everbridge, Inc. (NASDAQ:EVBG) is one of the best technology stocks to watch.
Here is what ClearBridge Investments Mid Cap Strategy has to say about Everbridge, Inc. (NASDAQ:EVBG) in its Q3 2022 investor letter:
“New holding Everbridge (NASDAQ:EVBG) is a leader in critical event management software used to coordinate and disseminate information to keep employees safe in the event of an emergency. The stock has struggled over the last year in digesting what we view as too many acquisitions. However, the company’s new CEO is refocusing the business on its flagship product by divesting ancillary product lines.”
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Disclosure: None. 12 Best Small Cap Tech Stocks To Buy is originally published on Insider Monkey.
