On February 18, Morningstar published a report on why small-cap stocks should not be ignored by investors. The firm highlighted that, across major markets worldwide, these stocks have underperformed large- and mid-cap indexes over the past decade. There have been a few exceptions, such as India and Australia, but overall performance has been comparatively lackluster. Despite this, the report underlined the possibility of valuation-driven opportunities emerging within the small-cap universe.
Navigating the potential for global small-cap stocks, Morningstar’s Chief European Markets Strategist, Michael Field, stated:
“The valuation gap between large and small is even bigger in Europe than in the U.S. And the fact that there’s some momentum there – people seem to be buying into the small-cap story, seem to buying into the long-term longevity and health of the economy as a whole – is a pretty good sign for 2026.”
Across the small-cap universe, software companies are known for their immense growth potential, which can occur rapidly. Many such businesses specialize within specific niches, which keeps them on the radar for potential bolt-on acquisitions by larger players. This is exactly where the value is unlocked for investors.
Separately, on February 12, Deloitte shared its 2026 outlook for the global software industry. The firm expects 2026 to be characterized by AI adoption and a shift towards AI-first products, likely making the landscape highly competitive. The firm noted that many larger players within the software space will extend resources to become “full-stack, end-to-end agentic platforms” through strategic acquisitions. Hence, there will be some compelling opportunities for investors across select areas.
With that background, let’s explore our 9 Small-Cap Software Infrastructure Stocks With Highest Upside Potential.
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Our Methodology
To identify relevant stocks for this article, we screened U.S.-listed software infrastructure companies with market capitalizations between $300 million and $2 billion. Next, we identified stocks with at least 45% upside potential according to TipRanks consensus, as of February 17 closing. Finally, we selected 9 stocks with the highest upside and ranked them in ascending order.
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).
9. Allot Limited (NASDAQ:ALLT)
Number of Hedge Fund Holders: 15
Upside Potential: 45.6%
Allot Limited (NASDAQ:ALLT) is one of the 9 small-cap software infrastructure stocks with the highest upside potential.
On January 12, Cantor Fitzgerald began coverage of Allot Limited (NASDAQ:ALLT), assigning an Overweight rating and a $15 price target. This resulted in an upside potential of more than 49% at the prevailing level.
The firm highlighted the company’s transition towards a security-centric consumer model, supported by the growing contribution of Security as a Service and improving financial metrics. While the company continues to benefit from strong business momentum and telecom carrier partnerships, its valuation remains materially below comparable companies, leaving room for potential upside and multiple re-rating.
On January 13, Allot Limited (NASDAQ:ALLT) announced that Compax Venture will deploy the company’s NetworkSecure and OffNetSecure solutions to support the launch of MVNOs, offering integrated cyber protection services. The firm believes this implementation will enable brands and communities using Compax’s platform to provide subscribers with network-based cybersecurity and content filtering protection.
Allot Limited (NASDAQ:ALLT) develops and sells network intelligence and security solutions for communication service providers and other enterprises. Through its Allot Secure Management platform, the company offers a comprehensive suite of end-to-end security management services. These include Allot NetworkSecure, Allot HomeSecure, Allot DNSecure, Allot BusinessSecure, and Allot Secure Cloud.
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