In this article, we will take a look at the 10 Must-Buy Small-Cap Stocks to Invest In.
Large-cap tech giants have been the catalyst behind the US equity market rallying to record highs. However, with momentum at all-time highs waning, it’s become clear that mega-cap tech stocks may not be the only game in town. Heads of equity trading at Citigroup and JPMorgan Chase believe it is time for small caps, which have lagged behind the overall market, to catch up.
The rotation away from mega-tech stocks comes as investors seek attractive opportunities in the equity markets at highly discounted valuations in small-cap stocks.
“There will be significant buying from systematic traders and discretionary investors who haven’t captured as much of this rally as they would have liked. Now, they’re under-positioned and have lost money to use to buy some of these laggards,” said Stuart Kaiser, who runs Citigroup’s desk as head of US equity trading strategy.
The increased focus on small-cap stocks also comes amid growing expectations that the US Federal Reserve will cut interest rates in September. The interest rate cuts are expected to lower the cost of capital needed for investing and boost consumer spending. Small-cap companies benefit the most in a low-interest-rate environment, as they can access the capital needed to expand their businesses at a lower cost.
“If the Fed cuts rates in September, this would greatly benefit small caps, as many small caps are levered to the economy and also financially,” said Larry Tentarelli, founder of the Blue Chip Trend Report.
While the S&P 500 has rallied to all-time highs, the Russell 2000 index, which tracks small-cap stocks, is still down by about 7% from its November highs. The underperformance highlights the room for growth in small-cap stocks amid the rotation from mega-cap stocks.
With that in mind, let’s take a look at the 10 Must-Buy Small Cap Stocks to Invest in.
Our Methodology
To compile a list of must-buy small-cap stocks to invest in, we utilized the Finviz stock screener to filter for small-cap stocks with a market capitalization of between $300 million and $2 billion. We then focused on stocks that have rallied by more than 100% year to date (as of August 22) and are popular among elite hedge funds, as of Q2 2025. Finally, we ranked the stocks in ascending order based on their year-to-date gains.
Why are we interested in the stocks that hedge funds pile into? The reason is straightforward: our research has demonstrated that we can outperform the market by replicating 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Must-Buy Small-Cap Stocks to Invest In
10. Adaptive Biotechnologies Corporation (NASDAQ:ADPT)
Market cap: $1.92 Billion
Year-to-date returns: 104.04%
Number of hedge fund holders: 26
Adaptive Biotechnologies Corporation (NASDAQ:ADPT) is one of the must-buy small-cap stocks to invest in. On August 18, the company confirmed it will end its strategic collaboration and license agreement with Genentech effective February 9, 2026. The strategic collaboration focuses on the research and development of cancer cell therapy products.
The termination of the agreement will relieve Adaptive Biotechnologies of exclusive obligations related to oncology cell therapies. The company is to realize $33.7 million in non-cash revenue as a result of the termination agreement in the second half of the year.
Following the termination, Adaptive Biotechnologies is to continue working on its Immune Medicine programs. Its financial programs will also remain focused on developing digital TCR-antigen prediction models. It also plans to advance the development of its lead T-cell depletion program.
Adaptive Biotechnologies Corporation (NASDAQ:ADPT) is a commercial-stage biotechnology company focused on leveraging the adaptive immune system to diagnose and treat diseases. It leverages its proprietary immune medicine platform to decode and translate the genetic information of the adaptive immune system, enabling the development of clinical products for various diseases.
9. SolarEdge Technologies, Inc. (NASDAQ:SEDG)
Market cap: $1.79 Billion
Year-to-date returns: 104.12%
Number of hedge fund holders: 27
SolarEdge Technologies, Inc. (NASDAQ:SEDG) is one of the must-buy small-cap stocks to invest in. On August 19, UBS reiterated a ‘Neutral’ rating on the stock and raised its price target to $30 from $20. The price target hike comes on the stock rallying by more than 100% year to date.
UBS raised its price target for the stock, impressed by SolarEdge’s prospects in the push for market share in the US residential inverter market amid the shift towards leased systems. The company boasts of a robust relationship with third-party ownership (TPO) partners, expected to strengthen its prospects in the industry.
In addition, the company boasts of products specifically designed to support the TPO model. Similarly, UBS expects SolarEdge to gain market share in the commercial and industrial segments as foreign entities, subject to concern restrictions, are expected to eliminate competitors for customers seeking tax credits.
SolarEdge Technologies, Inc. (NASDAQ:SEDG) is a company that specializes in clean energy solutions, focusing on the production, consumption, and management of solar energy. It works on DC-optimized inverter solutions, which maximize energy production in solar PV systems.
