Small-cap tech stocks have delivered respectable returns over the past three years, though they’ve significantly trailed their large-cap counterparts. A good proxy for the group, the Invesco S&P SmallCap Information Technology ETF (PSCT), has posted annualized total returns of around 14%–14.5% through late 2025, a solid performance considering the impact of 2022’s rate hikes and tighter funding conditions.
However, large-cap tech has performed on an entirely different scale. The iShares U.S. Technology ETF (IYW), representing mega-cap names, has compounded at roughly 39% annually over the same period, according to BlackRock. A recent update from Polar Capital quantifies this disparity: their data show that small-cap tech (Russell 2000 Technology) underperformed large-cap tech (Russell 1000 Technology) by 63 percentage points over three years and 116 points over five, on a cumulative basis.
Valuation metrics suggest broader structural challenges. The CFA Institute and Wellington both note that U.S. small caps currently trade at a 25%–30% forward P/E discount to large caps: near multi-decade lows. According to Reuters, small caps now represent just ~1.2% of total U.S. market cap, approaching a 100-year low, while an uptick in reverse splits further signals stress across the segment.
Going forward, valuations and positioning reflect considerable investor caution. Should interest rates stabilize and AI-related investment broaden beyond a small set of dominant firms, historical patterns suggest the potential for a reversal in small-cap relative performance. That said, such catch-up phases are conditional, not guaranteed.
While the overall picture for small-cap tech doesn’t look good, there were a handful of performers over the past three years, which we have listed below.
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Our Methodology
For our list, we scoured through the small-cap tech sector and picked stocks with the highest 3-year annualized returns and ranked them accordingly. We have also included their hedge fund sentiment as of Q3 2025. We sourced the data for 3-Year CAGRs from stockanalysis.com.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
10. Similarweb Ltd. (NYSE:SMWB)
3Y CAGR: 15.21%
Market Cap: $666.09 Million
Number of Hedge Fund Holders: 17
Similarweb Ltd. (NYSE:SMWB) is one of the best‑performing small‑cap tech names over the past few years, and its latest developments caught renewed analyst interest.
On November 17, Needham & Company LLC reiterated a “Buy” rating on Similarweb, with a price target of $14.00. Their bullish stance was driven by what they called a substantial “large language model (LLM) data opportunity,” which they estimate could become a near‑$1 billion revenue stream over time. Needham also pointed to improved go‑to‑market execution and early signs of better customer retention, which may boost revenue retention metrics heading into fiscal 2026.
This rating came just days after the company’s Q3 2025 earnings (released Nov 11), in which Similarweb reported EPS of $0.05, beating consensus of $0.02, while generating $71.79 million in revenue, just shy of the ~$71.95 million analysts expected.
Still, the quarter was marked by a negative net margin of –11.2% and a negative return on equity of –78.25%, underscoring that profitability remains elusive even as top‑line and per‑share metrics slightly beat expectations.
Similarweb Ltd. (NYSE:SMWB) offers a cloud‑based digital intelligence platform that aggregates and analyzes web and app traffic data from millions of sites and applications globally. Businesses, marketers, and analysts use its insights to track market trends, benchmark competitors, optimize digital strategy, and make data‑driven decisions.
9. Magic Software Enterprises Ltd. (NASDAQ:MGIC)
3Y CAGR: 17.65%
Market Cap: $1.22 Billion
Number of Hedge Fund Holders: 2
Magic Software Enterprises Ltd. (NASDAQ:MGIC) is one of the best-performing small-cap tech stocks in the past three years. On November 18, the company posted record Q3 revenue of $161.7 million, up 13.1% year-over-year, powered by demand across its IT consulting and enterprise software services.
Despite a stable gross margin at 27.3%, the company tightened the screws operationally: GAAP operating income rose 13.6% to $17.1 million, while non-GAAP operating profit hit $19.9 million, up 8.1% from the prior year. Bottom line: net income climbed to $9.9 million, or $0.20 per diluted share, compared to $0.17 last year, a modest but steady gain.
CEO Guy Bernstein said Magic “achieved all-time highs in revenues, gross profit and operating income,” crediting “sustained demand for our digital, AI-driven and cloud transformation solutions” and “disciplined execution across the organization.” He also highlighted the company’s “robust momentum” in the U.S. and called the pending merger with Matrix I.T. “an exciting new phase” that is expected to boost scale, market reach, and tech depth.
Magic Software Enterprises Ltd. (NASDAQ:MGIC), based in Israel, provides IT consulting, cloud integration, low-code development, and automation tools to mid- and large-enterprise clients worldwide.
8. A2Z Cust2Mate Solutions Corp. (NASDAQ:AZ)
3Y CAGR: 25.13%
Market Cap: $279.24 Million
Number of Hedge Fund Holders: 15
A2Z Cust2Mate Solutions Corp. (NASDAQ:AZ) is one of the best‑performing small‑cap tech stocks in the past three years. On November 25, the company announced that it had secured a purchase order from Super Sapir, an Israeli supermarket chain, for 3,000 of its smart shopping carts.
The total contract value is $30 million, under a deal that converts the purchase into a long‑term recurring‑revenue model. Super Sapir will pay a monthly fee per cart over a 60‑month period; that fee covers the carts themselves, charging stations, software, dashboards, maintenance, and other support services.
Importantly, A2Z Cust2Mate has secured exclusive rights to monetize the digital services tied to those carts within the Super Sapir network, including in‑store advertising, data services, and third‑party integrations. The agreement stipulates that Cust2Mate will pay Super Sapir a fixed fee for every thousand ads sold (CPM basis).
If deployed as planned, beginning in the first half of 2026, this rollout could mark a major scaling milestone and add a predictable recurring revenue stream for the company.
A2Z Cust2Mate Solutions Corp. (NASDAQ:AZ) builds and sells “smart carts” that enable in‑cart scanning and checkout. Its technology aims to reshape brick‑and‑mortar retail by merging hardware, software, and retail media into a unified in‑store shopping platform.
7. Tuya Inc. (NYSE:TUYA)
3Y CAGR: 26.98%
Market Cap: $1.36 Billion
Number of Hedge Fund Holders: 12
Tuya Inc. (NYSE:TUYA) is one of the best-performing small-cap tech stocks in the past three years. On November 24, the company reported its Q3 results for the period ended September 30. Total revenue reached $82.5 million, up 1.1% year-over-year, marking Tuya’s ninth consecutive quarter of YoY revenue growth.
Gross margin rose to 48.3%, while operating expenses declined 34.1% to $36 million. These improvements contributed to GAAP net profit of $15.0 million, compared with a net loss in the same quarter last year. Net margin reached 18.2%, up 23.6 percentage points year-over-year.
Management attributed the turnaround to a combination of cost discipline and demand for its Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS) offerings. PaaS revenue grew 2.4% to $59.2 million, while SaaS and other software rose 15.4% to $11.5 million. In contrast, smart solutions revenue, Tuya’s hardware-centric segment, declined.
During the earnings call, executives highlighted that over 93% of the devices shipped in Q3 were AI-enabled, signaling increased integration of AI across Tuya’s ecosystem.
Tuya Inc. (NYSE:TUYA) provides a global IoT development platform, offering PaaS, SaaS, and other tools to help brands build, deploy, and manage smart devices across categories such as energy, home automation, and security.
6. Allot Ltd. (NASDAQ:ALLT)
3Y CAGR: 34.21%
Market Cap: $453.52 Million
Number of Hedge Fund Holders: 15
Allot Ltd. (NASDAQ:ALLT) is one of the best-performing small-cap tech stocks in the last three years.
On November 21, following Allot’s Q3 print a day earlier, Needham & Company (analyst Mike Cikos) reiterated a Buy rating and a $12.50 price target, keeping its positive stance on the stock.
In its November 20 results, Allot reported revenue of $26.4 million (+14% YoY), non-GAAP operating income of $3.7 million, and said SECaaS (cybersecurity-as-a-service) represented 28% of quarterly revenue. Management highlighted SECaaS ARR of $27.6 million (+60% YoY) and raised full-year 2025 revenue guidance to $100–$103 million, citing momentum in both cybersecurity solutions and network-intelligence offerings. CEO Eyal Harari said Q3 delivered the company’s highest profitability in over a decade, driven by strong execution across these businesses.
Allot Ltd. (NASDAQ:ALLT) is an Israel-based provider of converged cybersecurity solutions and network intelligence for service providers and enterprises. Its platform supports network-native SECaaS, traffic control/shaping, and analytics, serving 500+ service providers and 1,000+ enterprises worldwide.
5. Cognyte Software Ltd. (NASDAQ:CGNT)
3Y CAGR: 39.19%
Market Cap: $610.75 Million
Number of Hedge Fund Holders: 25
Cognyte Software Ltd. (NASDAQ:CGNT) is one of the best-performing small-cap tech stocks in the last three years.
On November 19, Cognyte announced a ~$5 million contract with a new Tier-1 military intelligence agency in EMEA, replacing the incumbent vendor after a competitive process. The customer will deploy Cognyte’s tactical SIGINT solution to bolster situational awareness and reconnaissance, with the company highlighting rising demand for agile, scalable tactical intelligence that delivers rapid operational value.
In the release, Chief Revenue Officer Efi Nuri said the win shows the strength and operational adaptability of Cognyte’s tactical SIGINT offering. At the same time, CFO David Abadi framed the deal as a beachhead for cross-sell and expansion into additional AI-powered capabilities as needs grow. Cognyte emphasized that the engagement demonstrates momentum with national and military intelligence customers and the shift toward analytics-driven field solutions.
Cognyte Software Ltd. (NASDAQ:CGNT) is an Israel-based investigative analytics software company serving law enforcement, national security, and military intelligence agencies. Its platforms fuse and analyze data at scale and include solutions spanning Decision, Network, Operational, and Threat Intelligence, with an emphasis on AI-powered analytics to accelerate investigations and generate actionable insights.
4. Viant Technology Inc. (NASDAQ:DSP)
3Y CAGR: 42.47%
Market Cap: $697.38 Million
Number of Hedge Fund Holders: 18
Viant Technology Inc. (NASDAQ:DSP) is one of the best-performing small-cap tech stocks in the past three years.
On November 11, one day after Viant’s Q3 print (Nov 10), Citizens JMP’s Matthew Condon maintained “Market Outperform” and trimmed the price target to $16 from $18, citing a strong quarter. Condon noted that the contribution ex-TAC ran ~2% above consensus, and adjusted EBITDA topped the high end of guidance.
Viant reported revenue of $85.6 million (+7% YoY), contribution ex-TAC of ~$53 million (+12% YoY), and adjusted EBITDA of ~$16.0 million (+9% YoY), a 30% margin: all above midpoint guidance. Management attributed the outperformance to strengthening CTV demand, broader adoption of its Household ID / IRIS_ID addressability stack, and new brand wins; excluding political spend and a seasonal advertiser that transitioned off-platform due to a merger, revenue grew ~19% and contribution ex-TAC ~22%. Guidance called for Q4 contribution ex-TAC of $62–$64 million and adjusted EBITDA of $22.5–$23.5 million.
Viant Technology Inc. (NASDAQ:DSP) is an ad-tech company whose demand-side platform focuses on privacy-centric, programmatic advertising, especially Connected TV, leveraging proprietary identifiers and ViantAI to optimize targeting and measurement across the open internet.
3. Xunlei Limited (NASDAQ:XNET)
3Y CAGR: 57.42%
Market Cap: $463.41 Million
Number of Hedge Fund Holders: 6
Xunlei Limited (NASDAQ:XNET) is one of the best-performing small-cap tech stocks in the past three years.
On November 13, the company reported third-quarter results. Total revenue rose 57.7% year over year to $126.4 million, led by growth across all major lines: subscriptions ($40.7 million, +22%), live-streaming and other services ($49.1 million, +127%), and cloud computing ($36.6 million, +45%). Management said the surge reflected more subscribers, higher ARPU from a greater mix of premium users, rapid expansion of overseas audio live-streaming, stronger advertising, and increased demand from key cloud customers. Gross profit climbed 50% to $60.5 million, though gross margin eased to 47.9% given lower margins in cloud and a heavier mix from live-streaming.
Operating income reached $2.7 million (vs. a small loss a year ago). GAAP net income jumped to $550.1 million, primarily due to large unrealized gains tied to the company’s investment in Arashi Vision Inc.; on a non-GAAP basis, net income was $5.3 million with non-GAAP diluted EPS of $0.09. The company guided for Q4 revenue to be $131–$139 million (midpoint implies ~6.8% sequential growth). Management emphasized continued operational discipline while investing in strategic areas.
Founded in 2003, Xunlei Limited (NASDAQ:XNET) is a China-based technology company focused on distributed cloud services. Its portfolio spans cloud acceleration, shared cloud computing, and digital entertainment offerings designed to deliver faster, more efficient internet experiences.
2. TSS, Inc. (NASDAQ:TSSI)
3Y CAGR: 150.13%
Market Cap: $256.72 Million
Number of Hedge Fund Holders: 7
TSS, Inc. (NASDAQ:TSSI) is one of the best-performing small-cap tech stocks in the past three years.
On December 1, Lucid Capital Markets initiated coverage of TSS with a Buy rating and a $15 price target, implying roughly 56% upside from the $9.63 price cited at the time of the report.
Lucid’s pitch is simple: TSS is leveraged to the AI data-center buildout as a systems integrator that procures hardware, builds server racks, and maintains networks for enterprise customers, benefiting from a tight commercial relationship with Dell, a major supplier of AI-enabled servers. The firm expects headline revenue to decline by ~24% in 2026 as the company laps unusually large, low-margin procurement volumes from early 2025. Still, it argues growth should continue in the higher-margin systems integration and facilities management segments.
Valuation is the tension point. Lucid notes TSS trades at less than 1x on EV/Sales with limited institutional ownership, suggesting under-recognition.
TSS, Inc. (NASDAQ:TSSI) provides data-center services and AI/HPC infrastructure integration: procurement, rack buildout, and lifecycle services for enterprise and technology customers, with operations closely tied to Dell’s server ecosystem.
1. Innodata Inc. (NASDAQ:INOD)
3Y CAGR: 157.71%
Market Cap: $1.88 Billion
Number of Hedge Fund Holders: 21
Innodata Inc. (NASDAQ:INOD) is one of the best-performing small-cap tech stocks in the past three years.
As of December 5, the company is a consensus Buy with all analysts covering it assigning a Buy rating. Despite a substantial pullback since the second week of October, the stock is still up over 46% year-to-date. After that strong run, the consensus 1-year median price target of $92.5 still reflects a potential upside of 60%.
Among the analysts who have recently published was BWS Financial analyst Hamed Khorsand, who reiterated a Buy rating on Innodata Inc. (NASDAQ:INOD) with a $110 price target on November 11.
Separately, on November 6, the company announced the launch of Innodata Federal, a dedicated business unit focused on delivering AI solutions to U.S. defense, intelligence, and civilian agencies. The new unit is designed to help federal customers move faster on AI adoption while staying within strict security and evolving procurement frameworks such as OTAs and CSOs.
Innodata Federal will lean on the company’s experience in AI data engineering, model training, generative AI, and agentic AI to support missions including imagery analysis, autonomous systems development, document intelligence, and open-source intelligence monitoring. The business has already begun generating revenue through partnerships with major defense technology companies and prime contractors, as well as its first direct award from a U.S. defense agency, giving Innodata an early foothold in the expanding federal AI market.
By combining commercial-grade AI platforms with a cleared U.S. STEM workforce and global delivery infrastructure, Innodata aims to present itself as a scaled, low-risk partner for large government programs.
Innodata Inc. (NASDAQ:INOD) is a New Jersey–based data engineering and AI services company that builds and operates AI and data solutions for leading global technology companies and large enterprises.
While we acknowledge the potential of INOD to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than INOD and that has 100x upside potential, check out our report about this cheapest AI stock.
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