In this article, we will be taking a look at the 5 Most Promising Small-Cap Stocks to Buy According to Hedge Funds. If you wish to see the full list, visit 10 Most Promising Small-Cap Stocks to Buy According to Hedge Funds.
5. Yext, Inc. (NYSE:YEXT)
Number of Hedge Fund Holders: 24
Market Cap: $380.94 million
Yext, Inc. (NYSE:YEXT) is one of the most promising stocks on our list.
TheFly reported on June 3 that B. Riley Securities downgraded its rating on YEXT to Neutral from Buy and lowered its price target to $5 from $8. The firm described the company’s first quarter results as mixed and noted that YEXT’s efforts to improve operations and achieve sustainable growth may require more time than previously expected. The downgrade reflected concerns around slower growth momentum, limited visibility amid a challenging market environment, and weaker customer trends, including declines in small customer annual recurring revenue and modest growth among larger customers.
More recently, on June 17, Yext, Inc. (NYSE:YEXT) announced that its complete platform is now available to support enterprise AI workflows. The company introduced expanded capabilities designed to help businesses power AI agents with reliable intelligence, including continuously updated local data, verified brand information, and tools that enable automated execution. YEXT highlighted that while many companies are developing AI agents, effective performance depends on access to accurate and relevant information. The launch positions the business to help enterprise customers improve AI-driven operations by combining intelligence infrastructure with agent-based technology.
Yext, Inc. (NYSE:YEXT) is an enterprise AI and digital presence platform that helps brands manage online information, improve search visibility, and deliver accurate consumer answers across AI and traditional search channels.
4. Innoviva, Inc. (NASDAQ:INVA)
Number of Hedge Fund Holders: 26
Market Cap: $1.66 billion
Innoviva, Inc. (NASDAQ:INVA) is one of the most promising stocks on our list.
TheFly reported on June 18 that INVA announced the launch of Nortiva Bio, a clinical-stage biopharmaceutical company focused on developing long-acting oral therapies through its proprietary LYNX drug delivery platform. The technology is designed to convert traditional daily oral medicines into extended-release treatments with potential dosing intervals of up to one month.
Nortiva aims to improve treatment effectiveness, safety, medication adherence, and patient experiences across multiple therapeutic areas. The company operates as a wholly owned subsidiary of INVA following the acquisition of the LYNX platform from Lyndra Therapeutics in 2025.
Separately, on June 16, Innoviva, Inc. (NASDAQ:INVA) Specialty Therapeutics, a subsidiary of INVA, announced an exclusive distribution and licensing agreement with Dr. Reddy’s Laboratories for XACDURO in selected international markets. Under the agreement, Dr. Reddy’s will oversee development, regulatory processes, and commercialization efforts across South and Central America, the Caribbean, Russia, and the Commonwealth of Independent States countries.
Innoviva Specialty Therapeutics will maintain rights to XACDURO in markets outside the licensed regions. The company is also eligible to receive upfront payments, milestone-based payments tied to regulatory and commercial progress, and royalties from sales generated within the covered territories.
Innoviva, Inc. (NASDAQ:INVA) is a biopharmaceutical company focused on critical care and infectious disease treatments, supported by stable revenue from its respiratory royalty portfolio and investments in innovative therapies.
3. Upstream Bio, Inc. (NASDAQ:UPB)
Number of Hedge Fund Holders: 34
Market Cap: $340.12 million
Upstream Bio, Inc. (NASDAQ:UPB) is one of the most promising stocks on our list.
TheFly reported on June 3 that H.C. Wainwright analyst Matthew Caufield initiated coverage of UPB with a Buy rating and a $36 price target. The analyst highlighted the company’s lead candidate, verekitug, as a novel antibody designed to target the thymic stromal lymphopoietin receptor. The firm noted the potential of the therapy’s efficacy profile and differentiated quarterly subcutaneous dosing approach. H.C. Wainwright also identified thymic stromal lymphopoietin targeting in asthma as an area with significant unmet medical need.
More recently, on June 14, Upstream Bio, Inc. (NASDAQ:UPB) presented new responder analyses from its Phase 2 VIBRANT trial evaluating verekitug in participants with chronic rhinosinusitis with nasal polyps. The findings were shared during an oral presentation at the European Academy of Allergy and Clinical Immunology (EAACI) 2026 Congress in Istanbul, Turkey.
Results showed that verekitug, administered once every three months, achieved a placebo-adjusted reduction in nasal polyp score of -1.95 at Week 24 after accounting for rescue systemic corticosteroid use. The improvement exceeded the threshold generally considered clinically meaningful, highlighting the potential of verekitug in addressing unmet needs among patients with this condition.
Upstream Bio, Inc. (NASDAQ:UPB) is a clinical-stage biotechnology company developing therapies for severe inflammatory and respiratory diseases, including its lead programs targeting immune-driven conditions.
2. Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT)
Number of Hedge Fund Holders: 37
Market Cap: $365.80 million
Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) is one of the most promising stocks on our list.
TheFly reported on June 3 that BofA Securities analyst Jason Zemansky increased the price target on RCKT to $10 from $9 while maintaining a Buy rating on the shares. The analyst viewed the company’s first-quarter update positively, highlighting the restart of RP-A501 dosing as an important step in Rocket Pharmaceuticals’ near-term recovery strategy and development progress.
In a separate major operational milestone on June 12, Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), announced the completion of the sale of its Rare Pediatric Disease Priority Review Voucher (PRV) for gross proceeds of $180 million. The voucher was awarded by the FDA in March 2026 following the approval of Kresladi, Rocket’s gene therapy for severe leukocyte adhesion deficiency-I, a rare and potentially life-threatening immune disorder.
Before the transaction, RCKT reported cash, cash equivalents, and investments of $144.4 million as of March 31, 2026. Following the non-dilutive proceeds from the PRV sale, the company’s pro forma cash position increased to approximately $322.6 million, extending its expected operational runway through the second quarter of 2028.
Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) is a biotechnology company developing one-time gene therapies aimed at treating rare pediatric diseases, with a focus on potentially curative treatments and advancing toward commercialization.
1. Verastem, Inc. (NASDAQ:VSTM)
Number of Hedge Fund Holders: 38
Market Cap: $362.04 million
Verastem, Inc. (NASDAQ:VSTM) is one of the most promising stocks on our list.
TheFly reported on June 17 that VSTM Oncology announced updated safety and efficacy findings from the RAMP 205 Phase 1b/2a Recommended Phase 2 Dose cohort. The analysis included 29 patients with first-line metastatic pancreatic ductal adenocarcinoma receiving avutometinib and defactinib in combination with gemcitabine and nab-paclitaxel. The study evaluates whether targeting both KRAS-driven signaling and FAK-related resistance mechanisms alongside standard chemotherapy could improve outcomes for patients with metastatic pancreatic cancer. The findings provide further insight into the potential of this combination approach for addressing a disease where KRAS mutations play a major role in tumor progression.
Separately, on June 16, Verastem, Inc. (NASDAQ:VSTM) announced that the first patient had been dosed in the TARGET-D 201 Phase 2 registration-directed trial evaluating VS-7375, an investigational oral KRAS G12D inhibitor. The study is assessing VS-7375 in patients with KRAS G12D-mutated metastatic pancreatic ductal carcinoma, including use as a standalone therapy and in combination with cetuximab. The trial also explores a potential chemotherapy-free frontline approach in first-line metastatic pancreatic cancer. VS-7375 previously received FDA Fast Track Designation for advanced or metastatic pancreatic cancer in both first- and second-line treatment settings.
Verastem, Inc. (NASDAQ:VSTM) is a biopharmaceutical company developing targeted small molecule therapies for RAS/MAPK-driven cancers, with its lead products AVMAPKI and FAKZYNJA approved for recurrent low-grade serous ovarian cancer.
While we acknowledge the potential of VSTM 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 VSTM and that has 100x upside potential, check out our report about the cheapest AI stock.
READ NEXT: 10 Most Promising Penny Stocks According to Wall Street Analysts and 10 Best Growth Stocks Under $20 to Buy.
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