We recently compiled a list of the 12 Best Small Cap Tech Stocks to Buy. In this article, we are going to take a look at where HashiCorp Inc. (NASDAQ:HCP) stands against the best small-cap tech stocks to buy.
US Inflation and the Anticipated Fed Cuts
Inflation in the US may have reached a 3-year low of 2.6% in August, the lowest rate since March 2021, according to a survey of economists by FactSet. Core inflation, excluding food and energy prices, is believed to have remained at 3.2%.
Inflation peaked at a 4-decade high of 9.1% in June 2022 as the economy rebounded rapidly from the pandemic recession. The Fed responded with 11 rate hikes in 2022 and 2023, raising its key rate to a 23-year high and significantly increasing borrowing costs across the economy. The easing of inflation may pave the way for the Fed to start cutting interest rates next week.
AP News reported that Fed officials think that inflation is steadily declining towards their 2% target. Reducing the Fed’s benchmark rate is expected to lower borrowing costs for consumers and businesses. Christopher Waller, a key Fed policymaker, noted that over half of tracked goods and services have seen annual inflation drop below 2.5%.
Craig Johnson, Chief Market Technician at Piper Sandler & Co., and Gene Goldman, Cetera’s CIO, recently came together to discuss the Fed’s interest rate cuts, and stock sector performance.
Gene Goldman expressed that his base case anticipates 3 rate cuts of 25 basis points each, beginning in September. His belief lies in the slowing inflation, a deceleration in economic growth, and the overall resilience of the economy, which he thinks is not as dire as some reports suggest. Goldman noted that while the labor market showed mixed signals, with both positive and negative data, the market’s expectations for deeper rate cuts may be exaggerated. Goldman acknowledged that political uncertainties could also contribute to market fluctuations.
Craig Johnson was also of the opinion that a 25 basis point cut is already anticipated by the market, suggesting that a 50 basis point cut could raise concerns among investors. He believes that a series of 25 basis point cuts would align with their perspective. Craig emphasized the importance of staying calm considering that, historically, October has been a strong month for the markets, with gains observed 86% of the time since 1929.
Johnson acknowledged that while there has been a recent pullback, particularly following the worst week for the markets since March 2023, there has been a rebound with the Nasdaq and S&P showing positive movements. He highlighted the necessity of dissecting the performance of the MAG 7 tech stocks, which he believes are now lagging. Instead, he pointed out that there are promising stocks within the $2 to $10 billion range that demonstrate solid growth potential, both at the top and bottom lines, and appear constructive on the charts.
He noted the Nasdaq’s 0.75% rebound but referred to it as a dead cat bounce, indicating that a more substantial recovery of 8-10% could be on the horizon. He attributed the day’s positive market sentiment to an employment report that exceeded expectations.
Methodology
We used stock screeners to look for companies trading between $1 billion and $10 billion, that’s our definition of small-cap stocks. We sorted our screen by market cap and looked through the top 25 stocks that matched our criteria. We then selected 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
HashiCorp Inc. (NASDAQ:HCP)
Market Capitalization as of September 11: $6.87 billion
Number of Hedge Fund Holders: 47
HashiCorp Inc. (NASDAQ:HCP) is an American software company and a leading provider of infrastructure automation software, providing tools and products that enable developers, operators, and security professionals to provision, secure, run, and connect cloud-computing infrastructure. These tools can work on cloud, on-premises, and in hybrid environments.
The company reported that the high-value customers, with equal or greater than $100,000 in annual recurring revenue, were 934 in total, an increase of 16 from FQ1 2025, and 83 from FQ2 2024. This represented a 10% year-over-year growth. Customers with ~$100,000 in ARR represented 89% of total revenue in the FQ2 of 2025.
Total revenue was $165.14 million in the second quarter of fiscal 2025, up 15.28% from $143.2 million in the same period last year. The earnings per share were $0.08 compared to -$0.10 in the year-ago quarter.
Quarterly subscription revenue from the HashiCorp Cloud Platform reached $26.5 million in this period, up from $18.4 million in the second quarter of fiscal 2024.
The company’s 34.3% annualized revenue growth over the last three years has been excellent and is a testament to its future success. Analysts covering the company were expecting sales to grow 11.2% over the next 12 months. Such forward-looking statements show that the company is positioned for growth.
As of June 30, 47 hedge funds are long in the company, with the highest stake valued at $129,116,554 by Kryger Capital.
Madison Small Cap Fund stated the following regarding HashiCorp, Inc. (NASDAQ:HCP) in its first quarter 2024 investor letter:
“During the quarter, we sold two stocks (Alteryx and PTC) and initiated two new investment positions (HashiCorp and Mueller Water Products). HashiCorp, Inc. (NASDAQ:HCP) delivers software solutions that help large enterprises migrate their software applications and infrastructure from their own premises and networks to the public cloud. Hashi’s tools help automate and streamline the process and, once in the public cloud, manage their assets’ full lifecycle. We like Hashi’s strong competitive positioning, coupled with their recent pivot to more durable rates of growth and profitability. We estimate PMV at $40.”
Overall HCP ranks 7th on our list of the best small-cap tech stocks to buy. While we acknowledge the potential of HCP as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the stocks on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.