U.S. small-cap tech has had a decent three-year run, but it’s been totally overshadowed by mega-cap AI winners. A clean proxy, the Invesco S&P SmallCap Information Technology ETF (PSCT), has compounded about 14–15% annually over the past three years through early November 2025. Over the same span, the Nasdaq-100 delivered roughly a 130% cumulative gain, which works out to a bit above 30% a year, and the S&P 500 Information Technology sector is running near 39% annualized, both pulled up by NVIDIA/Microsoft/AI-infrastructure heavyweights that small-cap benchmarks simply don’t own. So the underperformance isn’t because “tech is weak”; it’s because the part of tech that exploded isn’t in small-cap indices.
Three things have been sitting on small-cap tech. First, rates: small caps are more levered to financing costs, and 2024–25 kept real rates high enough that the Russell complex even slipped into a bear patch in April 2025.
Second, index mix: S&P 600-style tech skews to comms gear, niche semis, metering/industrial IT and software with mid-teens growth, not to hyperscale AI platforms, so it didn’t get the multiple expansion the large caps got. Third, investors just preferred liquid, profitable AI names, which pulled flows away from the small stuff. The forward read is a bit better: Kiplinger and other small-cap commentators have already started flagging 2026-style rate-cut/re-acceleration setups and the possibility of policy that’s friendlier to domestics, which would help the rate-sensitive end of tech first. But even in that scenario, the most realistic path is “catch-up,” not “new leadership,” because the earnings power and AI optionality are still concentrated up the cap ladder.
Methodology
For our list, we used Stock Analysis’ screener to identify small-cap technology stocks that are popular among elite hedge funds and Wall Street analysts. We have sorted the list in ascending order of their hedge fund sentiment, as of Q2 2025. Data for the market cap is as of November 14.
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 Ltd. (NASDAQ:ALLT)
Number of Hedge Fund Holders: 10
Market Cap: $429 Million
Allot Ltd. (NASDAQ:ALLT) is one of the small-cap tech stocks on Wall Street’s radar.
On October 20, 2025, TD Cowen & Co. initiated coverage on Allot with a Buy rating and a price target of $13, citing the company’s positioning to sustain double-digit profitable growth in the years ahead, driven by tailwinds in the cybersecurity market and its focus on an “underserved” small-business segment, which TD Cowen estimates offers a ~$10 billion total addressable market.
In other news, on October 23, Needham initiated coverage at Buy with a $12.50 target, pointing to the company’s security-first direction and momentum in carrier cybersecurity-as-a-service (CCaaS), a model that layers recurring subscription revenue on top of telco distribution.
Allot Ltd. (NASDAQ: ALLT), based in Hod HaSharon, Israel, provides network intelligence and cybersecurity solutions for telecom service providers and enterprises worldwide. Its products enable traffic analytics, network-based security services and application control across mobile and fixed networks. The company’s portfolio, marketed as Allot Smart and Allot Secure, uses deep packet inspection to provide traffic management and quality-of-experience optimization, application visibility and control, and network-based security (anti-malware, anti-phishing, DDoS/botnet mitigation) that carriers bundle as value-added services for consumer, SMB, IoT and enterprise customers.
8. Rekor Systems, Inc. (NASDAQ:REKR)
Number of Hedge Fund Holders: 10
Market Cap: $270.35 Million
Rekor Systems, Inc. (NASDAQ:REKR) is one of the small-cap tech stocks on Wall Street’s radar.
On October 22, 2025, the company announced it will enter the global deep-fake detection market by launching a new subsidiary named Rekor Labs, separate from its core roadway-intelligence business.
The company estimates that the global deep-fake detection market could exceed $30 billion over the next decade. According to the release, product development began in 2023 after government customers requested verification of mandated traffic videos, marking the transition toward audio, image and video authenticity detection.
The full product launch is expected in the first half of 2026, with proof-of-concept and alpha milestones reportedly completed. The new business will target five key verticals: news media and journalism, social-media platforms, government/security agencies, enterprise safety, and entertainment/film markets.
Rekor Systems, Inc. (NASDAQ:REKR) is a Maryland-based company that develops AI-enabled computer-vision and machine-learning platforms for roadway intelligence. The firm’s flagship solutions, such as the Rekor Discover®, Rekor Command® and Rekor Scout® products, aggregate mobility data and provide analytics to governments and businesses.
