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.
8. Ouster, Inc. (NASDAQ:OUST)
Market cap: $1.72 Billion
Year-to-date returns: 140.65%
Number of hedge fund holders: 23
Ouster, Inc. (NASDAQ:OUST) is one of the must-buy small-cap stocks to invest in. On August 14, the company announced that Econolite had received a contract to expand its Ouster BlueCity traffic management solution to over 100 intersections in Utah.
The new contract follows the deployment of the system to more than a dozen intersections in the year as part of a five-year contract. The system is to be deployed at intersections in Cedar City, Ogden, Orem, and Salt Lake City. Ouster already boasts over 400 deployed sites for the system globally.
Ouster BlueCity system stands out for its ability to combine 3D digital lidar sensors with perception software for traffic signal actuation and analytics. It also integrates with existing traffic signal infrastructure, including Econolite Cobalt traffic signal controllers and EOS firmware. It was the first lidar traffic solution to receive NEMA TS2 certification.
“The rapid expansion of Ouster BlueCity across Utah, following its initial deployment this spring, highlights the traffic efficiency and safety benefits of the system,” said Ouster CEO Angus Pacala.
Ouster, Inc. (NASDAQ:OUST) designs and manufactures high-resolution lidar sensors and software solutions. Its sensors are used in various industries, including automotive, industrial, robotics, and innovative infrastructure, to provide 3D vision and enable autonomy. Its technology also helps machines, vehicles, and infrastructure understand their surroundings, enhancing safety and efficiency.
7. Power Solutions International, Inc. (NASDAQ:PSIX)
Market cap: $1.90 Billion
Year-to-date returns: 181.90%
Number of hedge fund holders: 10
Power Solutions International, Inc. (NASDAQ:PSIX) is one of the must-buy small-cap stocks to invest in. On August 11, the company announced it had entered into a second amendment to its Uncommitted Revolving Credit Agreement with Standard Chartered Bank.
With the new agreement, the company’s borrowing capacity under the credit facility has increased to $135 million. The agreement also extends the credit facility to July 30, 2027, as Power Solutions International has repaid all outstanding borrowings under the previous Shareholders’ Loan Agreement with Weichai America Corp.
Borrowings under the new credit facility are to incur interest at the applicable Secured Overnight Financing rate plus 2.10% per annum. The signing of the new agreement follows the company’s achievement of profitability and the generation of positive cash flows from operations for several years.
Power Solutions International, Inc. (NASDAQ:PSIX) is an industrial company that designs and manufactures emission-certified engines and power systems. Its solutions are utilized in various industries, including power generation, industrial equipment, and transportation.
6. Willdan Group, Inc. (NASDAQ:WLDN)
Market cap: $1.56 Billion
Year-to-date returns: 182.03%
Number of hedge fund holders: 25
Willdan Group, Inc. (NASDAQ:WLDN) is one of the must-buy small-cap stocks to invest in. On August 7, it delivered solid second-quarter results, characterized by double-digit revenue and adjusted EBITDA growth.
Net revenue in the quarter was up 31.1% year-over-year to $95 million, beating consensus estimates of $83.83 million. Net income increased 236% to $15.4 million as diluted adjusted earnings per share increased 172.7% to $1.50.
The better-than-expected results underscore strong execution in core programs, new contract wins, and the impact of successful strategic acquisitions.
“Electricity load growth from data centers and broader electrification trends are accelerating the need for reliable power and resilient grid infrastructure, driving investment across our markets. Following a record first half to the year and a strong outlook, we are increasing all 2025 financial targets,” said Mike Bieber, Willdan’s President and Chief Executive Officer.
Following solid second-quarter results, Willdan has raised its full-year financial guidance. It now expects full-year revenue to range between $340 million and $350 million, leading to diluted adjusted earnings per share of $3.50 to $3.65 per share.
Willdan Group, Inc. (NASDAQ:WLDN) provides professional, technical, and consulting services to a diverse range of clients, including utilities, government agencies, and private industry. It offers a wide range of services, including energy efficiency and sustainability, engineering and planning, and financial consulting.
5. Porch Group, Inc. (NASDAQ:PRCH)
Market cap: $1.92 Billion
Year-to-date returns: 215.96%
Number of hedge fund holders: 23
Porch Group, Inc. (NASDAQ:PRCH) is one of the must-buy small-cap stocks to invest in. On August 13, Keefe Bruyette & Woods raised the stock’s price target to $16 from $7 while reiterating a ‘Market perform’ rating.
The research firm hiked the stock’s price target, impressed by the company’s new capital-light operating structure and resulting benefits. Management has reiterated the company’s growth prospects, citing a solid reciprocal surplus and expansion of agency distribution channels.
The remarks come as the company delivered solid second-quarter results with earnings per share of $0.03, against an expected loss of $0.08 per share. Revenue in the quarter reached $119.2 million, exceeding expectations of $99.39 million. Keefe Bruyette & Woods expects Porch Group to achieve an EBITDA of $68 million, an improvement from its initial guidance of $67 million, following the positive second-quarter results.
Porch Group, Inc. (NASDAQ:PRCH) is a software application company focused on the home industry. It provides software and services to various home service sectors, including title & closing, mortgage, and insurance, while also connecting homeowners with service professionals. It aims to simplify the home-buying and maintenance process through its software and network.
4. Almonty Industries Inc. (NASDAQ:ALM)
Market cap: $1.25 Billion
Year-to-date returns: 315.53%
Number of hedge fund holders: N/A
Almonty Industries Inc. (NASDAQ:ALM) is one of the must-buy small-cap stocks to invest in. On August 11, Oppenheimer initiated coverage of Almonty Industries (NYSE:ALM) with an Outperform rating and a $7.00 price target, citing the company’s strong growth trajectory and recent NASDAQ listing on July 14, 2025. Almonty has delivered a staggering 440% return over the past year and is positioned to become the largest tungsten producer outside China and Russia.
Tungsten prices have surged past $500/MTU, fueled by rising global defense spending, U.S. restrictions on non-friendly-sourced materials, and China’s tightening export controls. In response to this demand, Almonty aims to triple its output to 2.4 million tons by 2027, potentially accounting for 40% of tungsten production among allied nations.
Almonty Industries Inc. (NASDAQ:ALM) is a tungsten mining and development company that acquires and optimizes underperforming tungsten operations and assets, with a focus on turning them around into profitable ventures. It operates mines in Spain, Portugal, and South Korea.
3. Claritev Corporation (NYSE:CTEV)
Market cap: $1.13 Billion
Year-to-date returns: 430.19%
Number of hedge fund holders: 10
Claritev Corporation (NYSE:CTEV) is one of the must-buy small-cap stocks to invest in. On August 6, the company delivered its second-quarter results, asserting a return to growth bolstered by value-added solutions across an expanded vertical and growing market segments.
The healthcare technology company achieved a 3.5% year-over-year revenue increase, as its adjusted EBITDA margin expanded by 94 basis points. Claritev’s net loss shrank to $62.6 million compared to a net loss of $576.7 million delivered in the same quarter last year.
Claritev saw its balance sheet receive a significant boost, with free cash flow in the second quarter increasing to $36.6 million from a negative $7 million in Q2 2024. Consequently, it ended the quarter with $56.4 million in unrestricted cash and cash equivalents.
Following the robust second-quarter results, Claritev has updated its full-year outlook. It now expects full-year revenue to be flat or increase by 2% compared to 2024 revenue. It also expects an adjusted EBITDA margin of between 62.5% and 63.5%.
Claritev Corporation (NYSE:CTEV) is a healthcare technology, data, and insights company that offers solutions for making healthcare more transparent, fair, and affordable for all.
2. Diginex Ltd (NASDAQ:DGNX)
Market cap: $1.31 Billion
Year-to-date returns: 659.60%
Number of hedge fund holders: 1
Diginex Ltd (NASDAQ:DGNX) is one of the must-buy small-cap stocks to invest in. On August 18, the company confirmed that its board of directors has approved a 7-for-1 forward stock split. The split is to be distributed as a share bonus to shareholders of record as of September 5.
Following the split, Diginex is to distribute seven bonus ordinary shares for each share held on the record date to shareholders. The distribution is to occur on September 8, 2025. The company is conducting the split as a way of enhancing liquidity and improving the stock’s accessibility to investors.
The stock split will result in the issued and outstanding shares increasing proportionally. However, the authorized share capital and share par value will remain unchanged. The stock split comes as Diginex Limited announces plans to acquire Resulticks, a leader in AI-driven customer engagement, to enhance its capabilities in advanced data management and artificial intelligence.
Diginex Ltd (NASDAQ:DGNX) is a technology company focused on sustainability reporting and supply chain due diligence. It offers solutions, including diginexESG and diginexLUMEN, to help companies manage and improve their environmental, social, and governance (ESG) practices, ensuring ethical supply chains.
1. ThredUp Inc. (NASDAQ:TDUP)
Market cap: $1.37 Billion
Year to date returns: 691.49%
Number of hedge fund holders: 25
ThredUp Inc. (NASDAQ:TDUP) is one of the must-buy small-cap stocks to invest in. On August 4, the company delivered solid second-quarter results driven by strong customer and order growth. Revenue in the quarter increased 16% year-over-year to $77.7 million as Gross profit increased 17% to $61.7 million and gross margin expanded to 79.5% from 78.8% in the second quarter of last year.
The robust revenue growth was driven by a 17% increase in active buyers to 1.47 million and a 21% rise in orders purchased to 1.54 million. Loss from continuing operations shrank to $5.2 million compared to a loss of $9.4 million in the second quarter of last year. The better-than-expected results came as ThredUp continues to benefit from AI investments that are driving buyer and seller acquisition.
ThredUp expects the growth achieved in the second quarter to continue in the third quarter. Therefore, it expects revenue to range between $76 million and $78 million, representing a 25% year-over-year increase. Gross margin is expected to range between 77% and 79%.
ThredUp Inc. (NASDAQ:TDUP) is an online consignment and thrift store specializing in buying and selling secondhand women’s and children’s clothing, shoes, and accessories. It also offers a “Resale-as-a-Service” platform that allows brands and retailers to integrate resale into their businesses.
While we acknowledge the potential of ThredUp Inc. (NASDAQ:TDUP) 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 TDUP and that has 100x upside potential, check out our report about this cheapest AI stock.
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