On January 29, Michael Sansoterra, Silvant Capital CIO, joined ‘The Exchange’ on CNBC to discuss the recent performance of tech stocks. Sansoterra observed that the ‘Triple Qs’ have been roughly flat since October, which is ‘sad’ when compared to the recent strong performance in small-cap and mid-cap stocks. However, he remains unconcerned about the flat start to the year and emphasizes that earnings and free cash flow are the primary drivers of value. He anticipates that the upcoming earnings reports would provide essential information, and as long as tech giants continue to exceed expectations and maintain strong fundamentals, the stocks should perform well.
Additionally, on January 16, Larry Adam, Raymond James CIO, appeared on CNBC’s ‘Power Lunch’ to discuss whether the rally in small cap stocks is here to stay. Adam stated that Raymond James is currently neutral on small-caps. He explained that for each of the last four years, the consensus has predicted a breakout for the sector based on earnings, yet in each of those years, earnings estimates were ultimately revised downward by more than 10%. Consequently, he maintains a neutral stance until the optimism surrounding their earnings translates into reality. He also clarified his sector-specific stances and stated he would be a buyer in the technology sector if a headline drove prices lower.
That being said, we’re here with a list of the 11 best small cap tech stocks to invest in now.
Our Methodology
We sifted through the Finviz stock screener to compile a list of small-cap, tech stocks that were trading between $300 million and $2 billion. We then selected 11 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2025.
Note: All data was sourced on January 30.
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).
11 Best Small Cap Tech Stocks to Invest In Now
11. Progress Software Corporation (NASDAQ:PRGS)
Number of Hedge Fund Holders: 25
Progress Software Corporation (NASDAQ:PRGS) is one of the best small cap tech stocks to invest in now. On January 16, as part of the firm’s 2026 infrastructure software outlook, Citi reduced its price target for Progress Software from $57 to $54 while maintaining a Buy rating. This adjustment came as the firm anticipates that the sector’s strong 2025 momentum will persist throughout the upcoming year.
Earlier on January 5, Jefferies lowered its price target for Progress Software from $50 to $45 while maintaining a Hold rating. This decision was made as the firm cited a cautious outlook for 2026. Jefferies anticipates the year will be characterized by gradual AI monetization and emphasized that significant growth acceleration is necessary to alleviate concerns regarding AI disintermediation.
As sector valuations align with historical averages, Jefferies advised investor patience and a more selective approach. However, the firm remains confident that long-term value will eventually accrue within the software layer.
Progress Software Corporation (NASDAQ:PRGS) provides software products that develop, deploy, and manage AI powered applications and digital experiences in the US and internationally.
10. MaxLinear Inc. (NASDAQ:MXL)
Number of Hedge Fund Holders: 26
MaxLinear Inc. (NASDAQ:MXL) is one of the best small cap tech stocks to invest in now. On January 29, MaxLinear reported a strong Q4 2025, with revenue reaching $136.4 million, which marked an 8% sequential increase and a 48% year-over-year rise. This was fueled by the infrastructure segment, which surged 76% annually due to high demand for optical interconnects and wireless infrastructure in data centers.
Looking ahead to 2026, MaxLinear Inc. (NASDAQ:MXL) expects its Keystone PAM4 DSP family to drive revenue between $100 million and $130 million as it ramps up at major hyperscale data centers. However, the company anticipates a softer H1 for its broadband business due to industry transitions to DOCSIS 4.0, which may lead to an overall annual decline in that specific segment. Despite supply chain tightness in the optical market and competitive pressures, leadership remains optimistic that infrastructure product mix improvements will push gross margins toward 60% by year-end.
Shortly after the company’s earnings report, on January 30, analyst Richard Shannon from Craig-Hallum reiterated a Buy rating on the stock with a price target of $27.
MaxLinear Inc. (NASDAQ:MXL) provides communications systems-on-chip solutions in the US, Asia, Europe, and internationally. It serves electronics distributors, module makers, OEMs, and original design manufacturers.
9. Amplitude Inc. (NASDAQ:AMPL)
Number of Hedge Fund Holders: 27
Amplitude Inc. (NASDAQ:AMPL) is one of the best small cap tech stocks to invest in now. On January 15, Morgan Stanley upgraded Amplitude to Overweight from Equal Weight, while raising its price target to $16 from a previous target of $14.
The firm believes that the company is well-positioned to capitalize on the surge of digital product user behavior data driven by generative AI’s acceleration of mobile and web application development. Additionally, the firm noted that Amplitude’s shares trade at a reasonable valuation and lack the seat-based model overhang seen elsewhere in the sector, which supports further upside potential.
Earlier on December 19, Baird increased its price target for Amplitude Inc. (NASDAQ:AMPL) to $15 from $14 while maintaining an Outperform rating. This revision followed an updated financial model informed by recent meetings with the company’s management team.
Amplitude Inc. (NASDAQ:AMPL), together with its subsidiaries, provides a digital analytics platform that analyzes customer behavior in the US and internationally.
8. Cohu Inc. (NASDAQ:COHU)
Number of Hedge Fund Holders: 29
Cohu Inc. (NASDAQ:COHU) is one of the best small cap tech stocks to invest in now. On January 26, B. Riley analyst Craig Ellis raised the price target for Cohu to $35 from $30 with a Buy rating, citing robust AI-driven demand for HBM, CoWoS, and GPUs that currently exceeds supply.
Despite near-term cyclical pressures, the firm anticipates a modest upside for Q4 2025 and steady guidance for early 2026, supported by recovering demand in Taiwan and the automotive and industrial sectors. These long-term AI growth drivers are expected to fuel significant expansion in both sales and earnings per share.
Furthermore, earlier on January 14, Stifel also increased its price target for Cohu Inc. (NASDAQ:COHU) to $32 from $30 while maintaining a Buy rating. This decision was made as part of its 2026 semiconductor equipment outlook. The firm’s decision follows bullish field checks that led analysts to raise their calendar 2026 industry wafer fabrication equipment spending forecast to 10% to 15% growth, up from the previous estimate of 7% to 8%.
Cohu Inc. (NASDAQ:COHU), through its subsidiaries, provides semiconductor test equipment and services internationally. It supplies test & inspection metrology automation systems, micro-electromechanical system test modules, test contactors, thermal subsystems, and data analytics software for semiconductor manufacturers and test subcontractors.
7. Penguin Solutions Inc. (NASDAQ:PENG)
Number of Hedge Fund Holders: 29
Penguin Solutions Inc. (NASDAQ:PENG) is one of the best small cap tech stocks to invest in now. On January 13, Goldman Sachs assumed coverage of Penguin Solutions with a Buy rating and a revised price target of $25, which was brought down from $26. While acknowledging that the company’s FY2026 outlook appears noisy, the firm remains encouraged by the momentum of Penguin’s AI infrastructure within its core customer base.
In FQ1 2026, Penguin Solutions reported a revenue of $343 million, which was a 1% year-over-year increase achieved despite the absence of hyperscale hardware revenue. Growth was led by the Integrated Memory business, which surged 41% annually to $137 million due to the transition to DDR5 technology and AI computing demand, while Advanced Computing revenue rose 9% sequentially to $151 million.
Despite these gains, the company faced a 18% sequential decline in its Optimized LED business due to weak demand in China and large US OEM sectors. Management also highlighted challenges regarding the wind-down of the high-margin Penguin Edge business, which is expected to cease by the end of fiscal 2026, and a 9% decline in services net sales. Penguin Solutions now expects a stronger H2 of the year as it shifts focus toward enterprise and sovereign AI opportunities, leveraging partnerships with Dell, CDW, and Nvidia to diversify its customer base beyond traditional hyperscalers.
Penguin Solutions Inc. (NASDAQ:PENG) designs, builds, deploys, and manages enterprise solutions worldwide. The company operates through three segments: Advanced Computing, Integrated Memory, and Optimized LED.
6. Flywire Corporation (NASDAQ:FLYW)
Number of Hedge Fund Holders: 31
Flywire Corporation (NASDAQ:FLYW) is one of the best small cap tech stocks to invest in now. On January 20, Truist analyst Matthew Coad increased the price target for Flywire to $17 from $16 with a Buy rating. This sentiment was announced as part of the firm’s broader Q4 2025 earnings preview for the FinTech sector.
While anticipating solid quarterly results, the firm noted that difficult year-over-year comparisons might limit significant volume beats and suggested that management could issue conservative 2026 guidance to reset market expectations. Despite these near-term adjustments, Truist remains optimistic about the group’s overall performance throughout 2026.
Additionally, on January 16, Stephens analyst Charles Nabhan upgraded Flywire to Overweight from Equal Weight and raised the price target to $19 from $17. The firm’s optimistic stance is driven by an improving higher education environment and a conservative 2026 outlook that leaves significant room for the company to outperform expectations. Additionally, the analyst highlighted Flywire’s various growth levers, a deeply discounted valuation, and a strong recent track record of beat-and-raise earnings quarters as primary reasons for the upgrade.
Flywire Corporation (NASDAQ:FLYW), together with its subsidiaries, operates as a payments enablement and software company in the US and internationally.
5. PagerDuty Inc. (NYSE:PD)
Number of Hedge Fund Holders: 33
PagerDuty Inc. (NYSE:PD) is one of the best small cap tech stocks to invest in now. On January 7, Truist lowered its price target for PagerDuty from $20 to $16 with a Buy rating and noted a sharp market divide between AI winners and losers.
The firm highlighted that seat-based business models are facing a valuation gap that is likely to persist into 2026. While this bifurcated sentiment remains a challenge, Truist suggested that some of last year’s underperformers may be positioned for a rebound.
On January 5, RBC Capital downgraded PagerDuty to Sector Perform from Outperform and reduced the price target to $15 from $17. The firm anticipates that the company will face ongoing pressure from its seat-based business model and noted that the incident management market is likely to undergo further consolidation. Additionally, the firm informed investors that there is limited potential for margin expansion in the short term.
PagerDuty Inc. (NYSE:PD) operates a digital operations management platform. The company’s digital operations management platform collects data and digital signals from virtually any software-enabled system or device and leverages ML to correlate, process, and predict opportunities and incidents.
4. Rapid7 Inc. (NASDAQ:RPD)
Number of Hedge Fund Holders: 34
Rapid7 Inc. (NASDAQ:RPD) is one of the best small cap tech stocks to invest in now. On January 21, Mizuho analyst Gregg Moskowitz reduced the price target for Rapid7 from $20 to $16 while maintaining a Neutral rating. This sentiment was announced as part of the firm’s broader large-cap software Q4 2025 earnings preview.
Although channel checks revealed solid public cloud performance and very strong AI adoption, the firm noted more moderate budget activity than typical and expressed concern that AI-related disruption is significantly depressing software company multiples. Consequently, Mizuho cited this widespread valuation compression as the primary driver for the lowered price target.
A day before that, Truist lowered its price target for Rapid7 to $14 from $18 with a Hold rating as part of a Q4 2025 cybersecurity sector preview. Although the firm expects strong Q4 results and continued momentum in Security and AI initiatives, it anticipates that management teams will issue conservative guidance for 2026 to facilitate a future beat-and-raise cadence. Despite steady demand from IT budget holders, Truist noted that software equities face significant headwinds.
Rapid7 Inc. (NASDAQ:RPD) provides cybersecurity software and services under the Rapid7, Nexpose, and Metasploit brand names.
3. Sprout Social Inc. (NASDAQ:SPT)
Number of Hedge Fund Holders: 34
Sprout Social Inc. (NASDAQ:SPT) is one of the best small cap tech stocks to invest in now. On January 15, Morgan Stanley lowered its price target for Sprout Social to $12 from $14, while maintaining an Equal Weight rating. In a sector outlook, the firm noted that while application SaaS underperformed in 2025, there is growing evidence that AI-related risks may be less severe than previously expected, supporting a more constructive view for 2026. However, because broad-based positive spending revisions have yet to materialize, the firm remains selectively opportunistic regarding the group.
Additionally, on January 12, Barclays analyst Raimo Lenschow significantly reduced the price target for Sprout Social to $13 from $26, while maintaining an Overweight rating on the shares. This adjustment was part of a broader 2026 outlook for the software sector, where Barclays remains generally optimistic.
The firm noted that despite the price target cut, the setup for software in 2026 is favorable due to stable IT spending, steady macroeconomic conditions, and historically low stock valuations in a sector that is currently out of favor with investors.
Sprout Social Inc. (NASDAQ:SPT) designs, develops, and operates a web-based social media management platform in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
2. Five9 Inc. (NASDAQ:FIVN)
Number of Hedge Fund Holders: 36
Five9 Inc. (NASDAQ:FIVN) is one of the best small cap tech stocks to invest in now. On January 15, Morgan Stanley lowered its price target for Five9 to $26 from $30 while keeping an Equal Weight rating. The firm noted that SaaS stocks lagged behind the broader software and technology sectors in 2025.
However, growing evidence suggests that AI-related risks may be less severe than previously anticipated, offering a more positive outlook for the group in 2026. Despite this, the firm remains selectively opportunistic due to a persistent lack of widespread upward revisions in corporate spending.
On January 12, Barclays analyst Raimo Lenschow lowered the firm’s price target on Five9 to $25 from $29 with an Overweight rating on the shares. This adjustment was made as part of a broader 2026 outlook for the software sector, where Barclays remains generally positive despite the lowered targets. The firm cited stable macroeconomic conditions and IT spending, combined with low stock valuations and the fact that the sector is currently out of favor, as reasons for a favorable setup in the coming year.
Five9 Inc. (NASDAQ:FIVN), together with its subsidiaries, provides intelligent cloud software for contact centers in the US and internationally. It offers a CX platform that delivers a suite of applications, which enables the breadth of customer service, sales, and marketing functions.
1. Sonos Inc. (NASDAQ:SONO)
Number of Hedge Fund Holders: 37
Sonos Inc. (NASDAQ:SONO) is one of the best small cap tech stocks to invest in now. On January 5, Jefferies raised its price target for Sonos to $21 from $19 with a Buy rating, characterizing 2026 as a year of gradual AI monetization for the software group. While the firm expressed confidence that long-term value will reside in the software layer, it noted that investors may need to remain patient as sector valuations return to historical averages. Furthermore, Jefferies emphasized that more significant growth acceleration is required to mitigate AI disintermediation fears, leading to a more selective investment approach within the sector.
In Q4 2025, Sonos Inc. (NASDAQ:SONO) posted revenue of $288 million, which was a 13% increase year-over-year. While full-year revenue declined by 5% to $1.44 billion, Sonos successfully reduced its annual operating expense run rate by over $100 million and grew its non-GAAP EPS by 31% to $0.64. Financial discipline was also evident in inventory management, which saw a 26% year-over-year reduction to $171 million.
For 2026, CEO Thomas Conrad described the upcoming year as a new chapter focused on a refreshed strategy that emphasizes the Sonos platform as a cohesive system for third-party and first-party AI experiences. Despite the positive momentum, the company faces headwinds from tariffs, which are expected to impact margins by 300 basis points in Q1 and 400 basis points in Q2. Management is proactively mitigating these costs through strategic pricing and promotions. For Q1 2026, Sonos provided revenue guidance of $510 million to $560 million.
Sonos Inc. (NASDAQ:SONO), together with its subsidiaries, designs, develops, manufactures, and sells audio products and services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
While we acknowledge the potential of SONO 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 SONO and that has 100x upside potential, check out our report about the cheapest AI stock.
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Disclosure: None.
