In this article we discuss Billionaire David E. Shaw’s 10 Small-Cap Stock Picks with Huge Upside Potential.
David E. Shaw is one billionaire investor whose record speaks for itself on Wall Street. Having founded D.E. Shaw & Co., L.P. in 1988 with $28 million in capital, the fund has grown to become one of the most successful and biggest, with a 13F portfolio worth $136.27 billion.
Amid the growth, Shaw’s hedge fund D E Shaw has also returned significant returns to shareholders. The fund’s flagship Composite fund has achieved an annualized net return of 12.7% since inception in 2001, as the Oculus Fund has averaged 13.7% annually since 2004 and has never had a negative year.
Shaw’s hedge fund was one of the earliest to leverage complex trading algorithms, followed by some form of human-run investing. Consequently, the multi-strategy fund remains the rage on Wall Street, given its solid returns over the years and the growing trend of returning gains to investors.
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Composite hedge fund gained 18% in 2024, with Oculus outperforming the overall market, soaring 36% and recording its best gain since inception. The better-than-expected returns come on Shaw and the other fund managers deploying systematic and computer-driven trading strategies to identify stocks trading at discounted valuations before they explode. Following the impressive performance in 2024, reports emerged that the hedge fund was planning to return billions of dollars to external clients, as has been the trend.
Amid the impressive performance last year, D.E. Shaw & Co. finds itself at a crossroads as the overall stock market has turned bearish. Major US indices have pulled back by about 6% from record highs amid recession concerns and deteriorating macroeconomics attributed to the US trade war.
The US Federal Reserve holding interest rates unchanged, waiting to see the impact of President Donald Trump’s trade policy, continues to rattle sentiments in the equity market. The Federal Reserve held its benchmark rate unchanged at between 4.25% and 4.5%, much to the anguish of Trump. In its statement, the Fed noted the uncertainty around the economic outlook.
“Uncertainty about the economic outlook has increased further,” the statement said. “The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have raised.”
Acknowledging that tariffs could worsen inflation and hinder economic expansion, the statement introduces the likelihood of a stagflation scenario, a phenomenon that has been largely missing from the US economy since the early 1980s. Decision-makers have mostly concurred that the central bank is currently well-placed, as the economy is performing reasonably well at this time, to exercise patience while fine-tuning monetary policy.
Amid the economic uncertainty, focus in the equity markets is slowly shifting towards small-cap stocks with significant upside potential. That’s partly because large-cap stocks are under pressure after skyrocketing to record highs, resulting in valuations above historical norms. Billionaire David E. Shaw’s portfolio boasts of solid small-cap stocks with tremendous upside potential.
David E. Shaw of D.E. Shaw
Our Methodology
We combed D. E. Shaw’s SEC Q4 2024 13F filings to identify Billionaire David E. Shaw’s 10 Small-Cap Stock Picks with Huge Upside Potential. We then settled on stocks with less than $10 billion in market cap and analyzed why the stocks stand out, as solid investments well poised to generate significant long-term value. Finally, we ranked the stocks in ascending order based on the stocks upside potential.
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).
Billionaire David E. Shaw’s 10 Small-Cap Stock Picks with Huge Upside Potential
10. Five9, Inc. (NASDAQ:FIVN)
D. E. Shaw’s Equity Stake: $536,448
Market Capitalization as of May 9: $2.07 Billion
Stock Upside Potential as of May 9: 30.63%
Number of Hedge Fund Holders: 40
Five9, Inc. (NASDAQ:FIVN) is a software infrastructure company that provides intelligent cloud software for contact centers. It offers a CX platform that delivers a suite of applications, which enables the breadth of customer service, sales, and marketing functions. The stock is down by about 35%. On May 2, UBS cut FIVN price target from $55.00 to $35.00 but kept a Buy rating, citing a more cautious valuation after its mixed earnings report.
The Buy stance stems from Five9, Inc. (NASDAQ:FIVN) delivering impressive first-quarter results, whereby revenue was up 17% year over year to $278.7 million. Five9 also reaffirmed a full-year revenue growth of 10%, affirming underlying growth. The company also bounced back to profitability with a net profit of $11.57 million from a net loss of $12.39 million delivered the same quarter last year.
The better-than-expected results came on Five9, Inc. (NASDAQ:FIVN), emerging as a leading cloud contact software industry player. Its competitive edge stems from its software spanning traditional phone calls, video calls, emails, and social media. Strong demand for the contact software was the catalyst behind the company’s annual revenue rising to record highs of $1 billion. Record results and strong traction in the AI business are one reason Five9 is one of billionaire David E. Shaw’s small-cap stocks with tremendous upside potential.
9. Victoria’s Secret & Co. (NYSE:VSCO)
D. E. Shaw’s Equity Stake: $83.85 Million
Market Capitalization as of May 9: $1.58 Billion
Stock Upside Potential as of May 9: 31.60%
Number of Hedge Fund Holders: 46
Victoria’s Secret & Co. (NYSE:VSCO) is a leading retailer of women’s lingerie and beauty products, operating 880+ stores in the U.S., Canada, and China, plus 500+ global franchise locations. It strengthened its digital presence with the 2022 acquisition of Adore Me, a size-inclusive lingerie brand, and holds a majority stake in a China-focused joint venture with Regina Miracle.
Victoria’s Secret & Co. (NYSE:VSCO) is modernizing its brands—Victoria’s Secret, PINK, and Beauty—through inclusive design, digital strategy, and strategic collaborations. Its Very Sexy collection, swimwear, and sport lines highlight innovation, while PINK targets Gen Z with trend-driven products. Beauty, led by Bombshell, remains strong. Despite challenges, the company is committed to long-term growth with a customer-focused approach.
For Q4 2024, net sales rose 1% to $2.106 billion, with comparable sales up 5%. Net income reached $193 million ($2.33 per share), up from $181 million ($2.29 per share) in Q4 2023. Operating income grew to $268 million from $258 million. Victoria’s Secret & Co. (NYSE:VSCO) has a Hold rating from 11 analysts, with an average price target of $25.32, ranging from $12.00 to $42.00, suggesting a 31.60% potential upside from its current $19.24.
8. Credo Technology Group Holding Ltd. (NASDAQ:CRDO)
D. E. Shaw’s Equity Stake: $266.89 Million
Market Capitalization as of May 9: $8.78 Billion
Stock Upside Potential as of May 9: 36.55%
Number of Hedge Fund Holders: 43
Credo Technology Group Holding Ltd. (NASDAQ:CRDO) is a technology company that provides high-speed connectivity solutions for optical and electrical Ethernet applications. Its products include HiWire active electrical cables, optical digital signal processors, and SerDes IP. The company is increasingly capitalizing on the growing demand for its solutions in the data infrastructure market, affirming why it is one of billionaire David E. Shaw’s 10 small-cap stock picks with tremendous upside potential.
Companies around the world are making significant investments in data centers to facilitate cloud computing and artificial intelligence. Consequently, global data center capital expenditures increased by almost 50% to about $455 billion in 2024 alone. As a result, Credo Technology Group Holding Ltd.’s (NASDAQ:CRDO) products, especially its Active Electrical Cables (AECs), are in high demand due to the continuous expansion of AI infrastructure.
As businesses assemble enormous clusters of AI servers, they need a ton of bandwidth to transfer data effectively. The AECs from Credo Technology Group Holding Ltd. (NASDAQ:CRDO) are made explicitly for that use. Credo Technology delivered robust third-quarter FY2025 financial results, surpassing market expectations. Revenue rose 154% year over year to $135 million as earnings per share came in at $0.25 against $0.18 expected.
7. Freshworks Inc. (NASDAQ:FRSH)
D. E. Shaw’s Equity Stake: $26.39 Million
Market Capitalization as of May 9: $4.34 Billion
Stock Upside Potential as of May 9: 39.66%
Number of Hedge Fund Holders: 40
Freshworks Inc. (NASDAQ:FRSH) provides simple, powerful service software for customer and employee experiences. Its AI-driven approach enhances efficiency and productivity, earning the trust of 72,000+ companies, including Bridgestone, Sony Music, and S&P Global.
In April, Freshworks Inc. (NASDAQ:FRSH) reported Q1 2025 revenue of $196.3 million, a 19% year-over-year increase, surpassing estimates and reflecting strong AI-driven growth. Key metrics include a 30% operating cash flow margin, $46.4 million non-GAAP income, $1 billion in cash reserves, and a 13% increase in customers contributing over $5,000 ARR. The company projects Q2 revenue of $197.3 million–$200.3 million and full-year revenue of $815.3 million –$824.3 million, targeting 13–15% growth.
“Freshworks had another fantastic quarter, outperforming our previously provided financial estimates in Q1 with revenue growing 19% year-over-year to $196.3 million, operating cash flow margin of 30% and adjusted free cash flow margin of 28%,” stated Dennis Woodside, Chief Executive Officer & President of Freshworks. “We continue to outperform because businesses are choosing Freshworks for our uncomplicated customer and employee service solutions.”
On May 1, Scotiabank raised Freshworks Inc.’s (NASDAQ:FRSH) price target from $14 to $18, maintaining a Sector Perform rating, citing its strong return on investment and competitive pricing amid potential macro challenges.
6. Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH)
D. E. Shaw’s Equity Stake: $115.57 Million
Market Capitalization as of May 9: $7.82 Billion
Stock Upside Potential as of May 9: 40.17%
Number of Hedge Fund Holders: 58
Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) is a cruise company that operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. Its brands provide accommodations, multiple dining venues, bars and lounges, a spa, a casino, retail shopping areas, and entertainment choices. While the stock is down by about 35% year to date due to weakening cruise demand, it is still one of billionaire David E. Shaw’s 10 small-cap stock picks with tremendous upside potential.
Despite the lower demand, Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) is not planning to offer discounts to attract more ticket sales for its cruises. Instead, it prioritizes strong pricing in anticipation of normalizing demand. Additionally, it is accelerating cost-saving initiatives to maintain profitability. It has already identified about $300 million in potential efficiencies.
The Miami-based operator delivered disappointing first-quarter 2025 results as revenues fell 3% year over year on softening demand to $2.13 billion compared to $2.15 billion a year ago. Adjusted earnings per share came in at $0.07, missing estimates of $0.09. Nevertheless, Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) maintained its outlook for 2025, anticipating adjusted EPS of $2.05, increasing about 13% year-over-year.
However, on May 1, BofA Securities cut Norwegian Cruise Line Holdings Ltd.’s (NYSE:NCLH) price target from $23.00 to $20.00, keeping a Neutral rating due to declining future bookings, economic uncertainty, and weaker travel demand.
5. Upstart Holdings, Inc. (NASDAQ:UPST)
D. E. Shaw’s Equity Stake: $202.43 Million
Market Capitalization as of May 9: $4.42 billion
Stock Upside Potential as of May 9: 40.28%
Number of Hedge Fund Holders: 39
Upstart Holdings, Inc. (NASDAQ:UPST) is a financial services company that operates a cloud-based artificial intelligence (AI) lending platform. Its platform includes personal loans, automotive retail and refinance loans, home equity lines of credit, and small-dollar loans. The company’s growth prospects have received a significant boost owing to the new artificial intelligence Model 18 that accelerates conversion in its platform.
Consequently, Upstart Holdings, Inc. (NASDAQ:UPST) delivered impressive Q1 2025 results with revenues increasing 67% to $213.4 million, beating analysts’ estimates of $201.3 million. Underlying growth was robust as loan originations rose 102% to 240,706 loans. On the other hand, adjusted earnings improved from a loss of $20.3 million to a profit of $42.6 million.
Upstart Holdings, Inc. (NASDAQ:UPST) stands out as one of billionaire David E. Shaw’s 10 small-cap stock picks with huge upside potential on diversifying its business away from unsecured consumer loans to auto loans that grew five times in the first quarter to $61 million. Additionally, it has inked a strategic partnership with fintech company One Pay, paving the way for it to target Walmart’s customer base. Consequently, Citi analysts have reiterated a Buy rating on the stock, even after cutting the price target to $83 from $108.
4. RH (NYSE:RH)
D. E. Shaw’s Equity Stake: $73.95 Million
Market Capitalization as of May 9: $3.60 Billion
Stock Upside Potential as of May 9: 41.25%
Number of Hedge Fund Holders: 51
RH (NYSE:RH) is a retailer and lifestyle brand in the home furnishings market. It offers products in various categories, including furniture, outdoor and garden, baby, child, and teen furnishings. The stock is again finding its footing after plunging by more than 20% in April on issuing a weaker-than-expected outlook and warning that it is facing the worst housing market in 50 years.
Amid the warning, the specialty retailer reiterated that it expects revenue in 2025 to grow between 10% and 13%. The solid outlook also came on the retailer posting a 10% year-over-year revenue increase in the fourth quarter of 2025 at $812.4 million. Adjusted net income more than doubled to $31.7 million, or $1.58 a share, compared to $14.3 million, or 72 cents a share, delivered the same quarter last year.
While RH (NYSE:RH) has been hit hard by the high interest rate environment and inflationary climate, it continues opening new galleries and expanding into new regions in pursuit of growth opportunities. The company also operates high-end restaurants, guesthouses, jets, and yachts as it seeks to flex its muscle in the global luxury market. Goldman Sachs analyst Kate McShane has reiterated a Hold rating on the stock, cutting the price target to $194 from $276.
3. PTC Therapeutics, Inc. (NASDAQ:PTCT)
D. E. Shaw’s Equity Stake: $69.62 Million
Market Capitalization as of May 9: $3.52 Billion
Stock Upside Potential as of May 9: 47.21%
Number of Hedge Fund Holders: 31
PTC Therapeutics, Inc. (NASDAQ:PTCT) is a biotechnology company that focuses on discovering, developing, and commercializing medicines for rare disorders. It offers Translarna and Emflaza for treating Duchenne muscular dystrophy; Upstaza for aromatic l-amino acid decarboxylase (AADC) deficiency, a central nervous system disorder. It is one of billionaire David E. Shaw’s 10 small-cap stock picks with huge upside potential as it continues to outperform the overall market.
Bank of America has already upgraded the stock to a Buy from Neutral and increased the price target to $68 from $55. The bullish stance comes as PTC Therapeutics, Inc. (NASDAQ:PTCT) reported a robust start to 2025, marked by significant progress in product launches and clinical trials. Revenue in the first quarter of 2025 totaled $190 million, with a significant portion coming from the Duchenne Muscular Dystrophy (DMD) franchise at $134 million.
PTC Therapeutics, Inc. (NASDAQ:PTCT) is on the cusp of diversifying its revenue base with the launch of SUFIANCE following a positive opinion from the CHMP. The company is targeting over $1 billion in revenue from the treatment. It’s also working on the PTC518 program for Huntington’s disease, which has already shown promising results in Phase 2 trials. The company remains in a solid cash position with over $2 billion that should support commercial and R&D activities.
2. AST SpaceMobile, Inc. (NASDAQ:ASTS)
D. E. Shaw’s Equity Stake: $84.93 Million
Market Capitalization as of May 9: $8.39 Billion
Stock Upside Potential as of May 9: 55.17%
Number of Hedge Fund Holders: 22
AST SpaceMobile, Inc. (NASDAQ:ASTS) is a communication equipment company that designs and develops the constellation of BlueBird satellites. It provides a cellular broadband network in space accessible directly by smartphones for commercial use, other applications, and government use. The stock has outperformed the overall market, going by the 19% year-to-date gain that affirms why it is one of billionaire David E. Shaw’s 10 small-cap stock picks with huge upside potential.
Amid the outperformance, Oppenheimer initiated coverage of the stock with a Perform rating. The bullish rating comes amid a confirmation that AST SpaceMobile, Inc. (NASDAQ:ASTS) plans to have 243 of its BlueBird satellites in orbit by the end of 2028. It should have at least 100 satellites working in orbit by the end of next year.
The push for more satellites comes as the company needs as many as 90 satellites to be a genuine global service provider in the provision of cellular broadband networks. AST SpaceMobile, Inc. (NASDAQ:ASTS) already boasts of solid Telco partners that rely on its services, including AT&T, Verizon, Rakuten, and Vodafone.
1. Moderna, Inc. (NASDAQ:MRNA)
D. E. Shaw’s Equity Stake: $73.54 Million
Market Capitalization as of May: $9.62 billion
Stock Upside Potential as of May 9: 91.63%
Number of Hedge Fund Holders: 44
Moderna, Inc. (NASDAQ:MRNA) is a biotechnology company that provides messenger RNA medicines. The company’s respiratory vaccines include Spikevax, mRESVIA, COVID-19, RSV, seasonal influenza, combination, and pandemic influenza. It’s also known for treatment across infectious diseases, oncology, and rare diseases. Shares of the Massachusetts company have declined significantly over the past year, attributed to the company facing setbacks on its pipeline.
The US Federal Drug Administration is requesting Phase 3 flu efficacy data for its COVID-19 and FLU combo vaccine. Moderna, Inc. (NASDAQ:MRNA) won’t be able to release the mRNA vaccine as expected in 2025. Nevertheless, a recent study has shown that combining the company’s flu and COVID-19 vaccine using messenger RNA generated antibodies and a stronger immune response. The combo shot can improve vaccination rates, which would be a significant boon for the company.
In addition, Moderna, Inc. (NASDAQ:MRNA) is angling for the approval of the mRNA technology that is currently only used in approved COVID-19 and RSV shots. Approval of the technology should end up speeding up the production of flu shots compared to traditional shots. The push comes as UBS maintains a Buy rating of the stock, even after cutting the price target to $70 from $78.
While we acknowledge the potential of Moderna, Inc. (NASDAQ:MRNA) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than MRNA but that trades at less than 5 times its earnings check out our report about this cheapest AI stock.
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