The small‑cap tech sector — broadly companies often defined in the U.S. as those with market capitalizations under roughly $200 million to $2 billion — currently occupies a precarious yet potentially rewarding position. On one hand, small caps in general have been under pressure: the classic “small‑cap premium” (smaller firms outperforming larger ones) has faded, with large‐cap firms generating an annualized return of about 10.6 % versus small‐cap’s 8.7 % according to one noted analysis by Monetagroup through mid‑2025. A key reason: many small companies carry higher floating‑rate debt, less operational flexibility and lower profitability — all penalized by higher interest‑rates and economic uncertainty.
Zoom into tech small caps and you find mixed signals. In the U.S., the S&P SmallCap 600 Capped Information Technology index tracks small‑cap tech exposures and exists, but sector weightings tell a story: tech exposure among small caps remains modest (mid‑teens) versus large‑caps where tech has surged to ~30 %. That suggests many small‑cap tech names are either still private, have grown out of “small cap,” or simply lack the scale to dominate the public markets.
Institutional interest in this niche appears muted compared to mega‑cap tech. Lower analyst coverage, higher volatility, and the liquidity constraints of smaller stocks deter large institutions. That said, valuations for small caps overall are becoming compelling: one note puts their relative valuation at the 5th percentile compared to large caps — suggesting institutions may be watching. Then again, “watching” isn’t the same as aggressively allocating.
Looking ahead: if interest‑rates fall and economic growth resumes, small‑cap tech could benefit disproportionately — lower financing costs, more growth runway, less global revenue exposure (many small caps are more U.S.‑domestic) and upside from niche technology disruption. But the flipside: macro risk remains, and until small‑cap tech demonstrates consistent earnings growth, institutions will likely allocate cautiously. In short: the sector’s set up for opportunity, but it’s not yet “Go” for broad institutional buying.
That said, some of the small-cap tech stocks definitely hold high institutional interest. Below is the list of small-cap tech stocks that hedge funds were piling into in Q2.
Methodology
For our list, we picked small-cap tech stocks that had the highest number of hedge funds holding stake in them as of Q2, 2025. We omitted any stocks whose hedge fund sentiment had decreased quarter-over-quarter. We’ve also mentioned each of the stock’s percentage returns between the period of June 30 to October 27 to reflect whether these hedge funds were right or wrong about their bet. We’ve done the ranking on the basis of the number of hedge funds holding stake in these stocks. For stocks with the same number of hedge fund holders, we’ve done the tiebreaking based on their percentage change since Q2.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
11. Telos Corporation (NASDAQ:TLS)
Number of Hedge Fund Holders: 15
Percentage Change Since Q2: 130%
Market Cap: $528.5 Million
Telos Corporation (NASDAQ:TLS) was one of the small-cap tech stocks hedge funds were buying in Q2
On October 13, 2025, Telos Corporation announced that a U.S. federal agency will deploy its AI‑driven governance, risk and compliance platform, Xacta.ai, enterprise‑wide, marking the first full‑scale federal rollout of the solution.
The agency, already a Telos customer, will integrate the software across its operations to leverage intelligent workflows, real‑time insights, and automated compliance mapping. In pilot testing, Telos said Xacta.ai shortened compliance tasks from months to days and generated implementation statements in minutes rather than hours.
The system is designed to automate risk assessments, streamline authorization processes, and enhance security compliance at scale. The company described the deployment as part of its effort to modernize federal compliance operations through artificial intelligence and automated workflows.
Telos Corporation (NASDAQ:TLS) is headquartered in Ashburn, Virginia, and provides cybersecurity, cloud security and enterprise identity/defense solutions to government and regulated industries around the world.
10. Perion Network Ltd. (NASDAQ:PERI)
Number of Hedge Fund Holders: 17
Percentage Change Since Q2: -4.6%
Market Cap: $430 Million
Perion Network Ltd. (NASDAQ:PERI) is one of the small-cap tech stocks hedge funds were buying in Q2. On October 13, Jason Kreyer from Craig-Hallum initiated coverage of Perion Network Ltd. (NASDAQ:PERI) with a Buy rating and a $14 price target. The analyst’s price target points to a nearly 50% upside from current levels.
In other news, on September 25, Perion announced a strategic partnership with Albertsons Media Collective, the retail media arm of grocery giant Albertsons Companies. The collaboration gives Perion access to Albertsons’ first-party purchase data across a network of over 2,200 stores and 100 million+ shoppers. Through this integration, advertisers using Perion’s platform can now target retail audiences more precisely across high-impact display formats and digital out-of-home (DOOH) environments.
The move signals Perion’s growing ambition in the fast-evolving retail media space, a rare area of AdTech still posting meaningful growth, driven by brands seeking alternatives to walled gardens. While financial terms weren’t disclosed, the partnership is expected to enhance Perion’s value proposition in omnichannel advertising and help it differentiate from more commoditized programmatic platforms.
Perion Network Ltd. (NASDAQ:PERI) is a Tel Aviv- and New York-based technology company that provides advertising solutions across search, social, display, and DOOH channels. Its clients include brands, agencies, and publishers aiming to optimize engagement and ROI across digital campaigns.
9. The Hackett Group, Inc. (NASDAQ:HCKT)
Number of Hedge Fund Holders: 18
Percentage Change Since Q2: -27%
Market Cap: $507 Million
The Hackett Group, Inc. (NASDAQ:HCKT) is one of the small-cap tech stocks hedge funds were buying in Q2.
On October 27, 2025, Barrington Research reaffirmed its Outperform rating on Hackett, maintaining a $27 price target. This marks the third consecutive month analyst Vincent Colicchio has backed the stock at that level, having lowered the target from $32 in early August. While Colicchio hasn’t publicly elaborated on the rationale, the pattern suggests the analyst remains confident in Hackett’s long-term positioning despite adjusting near-term expectations.
The company is set to report Q3 2025 results on November 4, offering investors a chance to test that thesis. Key metrics to watch will include digital transformation demand, consulting utilization rates, and margin trends, especially as Hackett continues integrating AI-driven process solutions like those tied to its Celonis partnership.
The Hackett Group, Inc. (NASDAQ:HCKT) is a Miami-based IP-led strategic consultancy and enterprise benchmarking firm. It serves global clients with solutions spanning digital transformation, enterprise performance, and cost optimization.
8. Allot Ltd. (NASDAQ:ALLT)
Number of Hedge Fund Holders: 18
Percentage Change Since Q2: 20%
Market Cap: $463 Million
Allot Ltd. (NASDAQ:ALLT) is one of the small-cap tech stocks hedge funds were buying in Q2.
On October 23, 2025, Needham & Company initiated coverage of Allot with a Buy rating and a $12.50 price target. In its note, Needham highlighted Allot’s strategic positioning in the network intelligence and security space, citing growth potential driven by its focus on a “security-first approach.” The firm pointed to Allot’s multi-service platform, which is deployed by mobile, fixed, and cloud service providers, as a foundation for this momentum.
The Needham rating followed a similar initiation by TD Cowen just days earlier, suggesting a shift in analyst sentiment toward Allot’s turnaround narrative.
Allot Ltd. (NASDAQ:ALLT) is a Hod HaSharon, Israel-based provider of network intelligence and cybersecurity solutions. Its technology enables telecom operators and enterprises to deliver security, traffic control, and visibility across both mobile and fixed networks.
7. Backblaze, Inc. (NASDAQ:BLZE)
Number of Hedge Fund Holders: 21
Percentage Change Since Q2: 89%
Market Cap: $605.7 Million
Backblaze, Inc. (NASDAQ:BLZE) is one of the small-cap tech stocks hedge funds were buying in Q2.
On October 17, 2025, Oppenheimer analyst Ittai Kidron reaffirmed an Outperform rating on Backblaze and raised the firm’s price target from $10 to $11. In his note, Kidron pointed to encouraging signals from channel checks, including steady deal flow in Q3 and healthy pipeline momentum going into Q4. He also described the competitive landscape as “normal,” suggesting no material change in pricing pressure or market share dynamics.
The updated target implies confidence in the company’s ability to sustain revenue growth while executing on customer acquisition and retention. The tone of the commentary leaned constructive rather than speculative, signaling a measured optimism based on field feedback rather than top-down macro themes.
Backblaze, Inc. (NASDAQ:BLZE) is a California-based cloud storage and data backup company known for its affordable and scalable B2 cloud platform. It serves developers, SMBs, and enterprise clients with object storage and backup solutions, positioning itself as a cost-effective alternative to hyperscalers.
6. Unisys Corporation (NYSE:UIS)
Number of Hedge Fund Holders: 24
Percentage Change Since Q2: -17%
Market Cap: $264 Million
Unisys Corporation (NYSE:UIS) is one of the small-cap tech stocks hedge funds were buying in Q2.
On October 9, 2025, Unisys announced it had been awarded a major cybersecurity contract by the European Commission. The deal is part of a framework agreement called FREIA, under which Unisys will lead the EUCybersafe Consortium – a team of firms tasked with delivering cybersecurity services across 71 EU institutions, bodies, and agencies. The scope includes threat intelligence, risk management, incident response, and overall cyber resilience.
This marks a meaningful win for Unisys in the European public-sector market, bolstering its credentials in a domain where trust, compliance, and institutional alignment are key barriers to entry. As EU member states ramp up digital defense in the face of rising cyber threats, this contract positions Unisys as a central player in the region’s cyber strategy architecture.
Unisys Corporation (NYSE:UIS) is a global IT services and solutions company specializing in digital workplace services, cloud infrastructure, enterprise computing, and cybersecurity. The company serves government and commercial clients worldwide.
5. NetScout Systems, Inc. (NASDAQ:NTCT)
Number of Hedge Fund Holders: 24
Percentage Change Since Q2: 9%
Market Cap: $1.94 Billion
NetScout Systems, Inc. (NASDAQ:NTCT) is one of the small-cap tech stocks hedge funds were buying in Q2. On October 13, RBC Capital analyst Matthew Hedberg maintained his Hold rating on NetScout Systems, Inc. (NASDAQ:NTCT). While Hedberg does not have a price target for the stock, the Street’s consensus target of $33 points to a potential 22% upside from current levels.
In other news, on September 25, NetScout announced it is helping cable providers and multi-system operators (MSOs) reduce Fiber-to-the-Home (FTTH) deployment costs and mitigate subscriber churn using deep-packet-inspection-enhanced observability.
The company said its solution delivers operational insights that support fault isolation, optimize network efficiency, and help maintain service quality throughout the FTTH rollout lifecycle.
These capabilities aim to reduce truck rolls, speed up issue resolution, and ensure a consistent user experience, areas that are increasingly critical as operators scale broadband access in competitive regional markets. While not tied to a specific customer deployment, the update reinforces NetScout’s push to apply its packet-level analytics across last-mile and access networks.
NetScout Systems, Inc. (NASDAQ:NTCT) is a Massachusetts-based provider of network performance monitoring, cybersecurity, and service assurance solutions. Its technologies, anchored by deep packet inspection, serve enterprises, telecom operators, and public-sector clients, offering real-time traffic visibility and advanced threat detection across complex digital infrastructures.
4. Yext, Inc. (NYSE:YEXT)
Number of Hedge Fund Holders: 25
Percentage Change Since Q2: 0.70%
Market Cap: $1 Billion
Yext, Inc. (NYSE:YEXT) is one of the small-cap tech stocks hedge funds were buying in Q2.
On October 29, 2025, Yext published its latest product update, formally deprecating its Knowledge Assistant tool, which had previously allowed businesses to manage listings via conversational input. In its place, the company introduced a slate of new features aimed at improving flexibility and brand control across its digital experience platform.
These included a user-editable schema for technical SEO, an optional starting location for map-based locator pages, and a customizable banner section for directory and locator modules: changes that appear to reflect Yext’s broader pivot toward modular, mobile-optimized web architecture.
The update followed the company’s September release, which had announced the sunsetting of the Knowledge Assistant and rolled out a beta version of the new Yext mobile app. With these changes, Yext seems to be retooling its platform for a post-AI, mobile-first future, trading legacy tools for targeted enhancements to core functionality.
Yext, Inc. (NYSE:YEXT) provides a platform for managing digital knowledge and customer-facing content across websites, search engines, and other endpoints. It is headquartered in New York.
3. Penguin Solutions, Inc. (NASDAQ:PENG)
Number of Hedge Fund Holders: 25
Percentage Change Since Q2: 15%
Market Cap: $1.2 Billion
Penguin Solutions, Inc. (NASDAQ:PENG) is one of the small-cap tech stocks hedge funds were buying in Q2.
On October 1, 2025, Rosenblatt Securities reiterated its Buy rating on Penguin Solutions and raised its 12-month price target from $27 to $36. A week later, on October 8, the firm maintained its Buy rating but revised the price target downward to $30. According to reports, Rosenblatt’s valuation update reflected shifting expectations around memory pricing trends and near-term hardware order timing from major customers such as Meta Platforms.
The analyst reportedly sees strength in memory demand and continues to view Penguin’s positioning in enterprise AI infrastructure as a long-term growth lever.
On October 14, Rosenblatt reaffirmed its Buy rating with the revised $30 target.
Penguin Solutions, Inc. (NASDAQ:PENG) is a California-based technology company providing high-performance computing and AI infrastructure solutions across enterprise, cloud, and government sectors.
2. LiveRamp Holdings, Inc. (NYSE:RAMP)
Number of Hedge Fund Holders: 31
Percentage Change Since Q2: -15%
Market Cap: $1.8 Billion
LiveRamp Holdings, Inc. (NYSE:RAMP) is one of the small-cap tech stocks hedge funds were buying in Q2.
On October 23, 2025, LiveRamp announced it had expanded the measurement capabilities available to retail media networks using its platform, specifically through deeper attribution insights from Meta Platforms, Inc. campaigns. The company said the enhancement will allow participating retailers to better understand closed-loop performance across Meta’s advertising surfaces.
These new capabilities are delivered via LiveRamp’s clean-room infrastructure, which supports privacy-centric collaboration between retailers and brands. According to the announcement, the update enables insights that can help retailers more precisely assess return on ad spend, optimize campaign strategies, and deepen brand relationships, all within the guardrails of secure data environments.
LiveRamp Holdings, Inc. (NYSE:RAMP) is a San Francisco–based data collaboration platform that enables organizations to securely connect, activate, and measure data across marketing and analytics ecosystems. Its core offerings include identity resolution, clean-room technology, and secure data onboarding for enterprises, publishers, and advertising platforms.
1. NextNav Inc. (NASDAQ:NN)
Number of Hedge Fund Holders: 33
Percentage Change Since Q2: -15%
Market Cap: $1.72 Billion
NextNav, Inc. (NASDAQ:NN) is one of the small-cap tech stocks hedge funds were buying in Q2.
On October 24, 2025, NextNav announced the successful integration of its 5G-based Positioning, Navigation and Timing (PNT) technology with a GNSS-enabled grandmaster clock developed by Oscilloquartz, a division of Adtran. According to the company, the combined system delivers GPS-quality timing signals in environments where traditional satellite signals are unavailable or degraded, including deep indoors and urban canyons.
The integration marks a step forward in NextNav’s push to provide resilient timing solutions critical for infrastructure applications in telecom, energy, and defense. The company said this capability could serve as a complementary or backup system to GPS, helping mitigate the risks associated with GNSS signal loss or spoofing in critical systems.
NextNav, Inc. (NASDAQ:NN) provides next-generation geolocation solutions through its TerraPoiNT and Pinnacle platforms. Its technologies enable 3D location and resilient timing for public safety, E911, critical infrastructure, and emerging 5G and IoT applications, especially where traditional GPS is limited or unavailable.
While we acknowledge the potential of NN 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 NN and that has 100x upside potential, check out our report about this cheapest AI stock.
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