The slide in AI stocks is prompting investors to explore beyond the market’s leading companies. According to Reuters on November 2, more than 70% of S&P 500 constituents increased in October, despite steep drops in AI-related companies, while small- and mid-cap indexes also advanced. “Investors want to maintain equity exposure. But now they want to reduce AI concentration risk and are adding to areas that offer differentiated sources of return,” said Angelo Kourkafas, senior global investment strategist at Edward Jones. This broadening opens up opportunities for smaller companies whose attractiveness is based on earnings and cash generation rather than enthusiasm for AI spending, a theme Insider Monkey explored in its coverage of Howard Marks’ warnings on AI stocks.
On October 20, the Russell 2000 gained 1.7% and the S&P 500 Value Index jumped 0.9%, while the growth counterpart declined 0.2%. Speaking to Reuters, Jim Baird, chief investment officer at Plante Moran Financial Advisors, said the following:
“Equity investors are still a little skeptical around the AI trade and the ability for some of these companies to monetize their investments, so you’re seeing a bit of a rotation into other areas of the market.”
The shift strengthens the case for looking beyond crowded technology markets to other areas, such the smaller companies profiled in Insider Monkey’s 10 Cheap Small Cap Stocks to Buy Now.
Small-cap value has also provided some safety during the recent slump. In his third-quarter review, Royce Investment Partners Co-Chief Investment Officer Francis Gannon noted that the Russell 2000 Value Index fell 4.9%, compared to the Russell 2000 Growth Index’s 9.4% drop. That doesn’t make value stocks immune to losses, but it shows why starting valuation is important when investors are less willing to pay for future growth.
Gannon claims that the opportunity hasn’t disappeared following the rebound. “Today, we see a potentially powerful combination for small-cap investors: accelerating earnings, attractive relative valuations, and low expectations,” he wrote in a commentary published on October 30. He emphasized higher-quality companies with robust balance sheets, sustained profitability, and disciplined capital allocation, a significant distinction between buying cheap businesses and simply buying declining share prices. That distinction also influences stock selection. In this regard, Insider Monkey’s recent 10 Strong Buy Small Cap Stocks to Invest In provides a similar view on smaller companies receiving analyst support.
That said, the rotation still has limitations. Reuters warned that broader market weakness might transform diversification into outright risk reduction. “If the major averages begin to drop in a more compelling manner, it is very likely that investors will stop rotating into other sectors … and start rotating into cash,” Miller Tabak’s Matt Maley wrote in a note. The best small-cap value candidates need more than just a positive market trend: earnings, liquidity, and balance-sheet strength that can endure a less supportive environment.
Our Methodology
For this list, we screened for small-cap stocks that have a forward price-to-earnings ratio of less than 15. Moreover, these stocks boast a revenue growth rate of over 20% over the previous twelve months. We then ranked the shortlisted stocks in ascending order based on the number of hedge funds holding their shares, using Insider Monkey’s database of hedge fund ownership for Q2 2026.
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. Insider Monkey’s quarterly newsletter strategy selects 14 small-cap and large-cap stocks every quarter and has returned 612% since May 2014, beating its benchmark by 375 percentage points (see more details here).
10. RLX Technology Inc. (NYSE:RLX)
Forward P/E: 10.59
TTM Revenue Growth Rate: 39.66%
Number of Hedge Fund Holders: 15
RLX Technology Inc. is a global branded e-vapor company that currently generates over 70% of its revenue outside China. The company’s second-quarter net revenues increased 14.8% to RMB1.01 billion (about $149 million), with international sales accounting for 68.5% of the total. Gross margin rose to 35.4% from 27.5%, boosting gross profit by 47.8% to RMB357.8 million. Non-GAAP operating income also climbed 28.8% to RMB149.6 million, marking 11th consecutive quarter of positive non-GAAP operating profit. Back in July, RLX bought a 51% share in a Western European distributor of smoke-free and consumer products, which management expects to significantly boost reported revenue beginning in the third quarter. It has also introduced oral nicotine pouches and is establishing a manufacturing facility in Southeast Asia.
Growth is lumpier than the headline implies. The first quarter revenue rose 96.2% to RMB1.59 billion due to a one-time pull-forward related to regulatory export adjustments, thus the second quarter revenue declined sequentially. At the same time, non-GAAP net income fell to RMB238.8 million from RMB291.2 million a year ago, while operating cash flow was negative RMB63.2 million. The stock is now dependent on whether Europe and the new pouch category can replace the pull-forward. Read how RLX is betting big on both here.
9. Jefferson Capital, Inc. Common Stock (NASDAQ:JCAP)
Forward P/E: 6.56
TTM Revenue Growth Rate: 72.54%
Number of Hedge Fund Holders: 16
Jefferson Capital, Inc. buys and collects on charged-off, insolvency, and active consumer accounts, and it has lately entered the Mexican market. The company’s second-quarter collections rose by 18% to $300.9 million, deployments increased by 21% to $152.2 million, and remaining collections are expected to climb by 18% to $3.4 billion. Meanwhile, adjusted earnings per share of $0.77 surpassed analyst expectations of $0.62, while adjusted pre-tax return on equity came in at 51.6%. The bull case revolves heavily around valuation. Jefferson Capital trades at 6.56x forward earnings and 7.77x trailing earnings, a low multiple for a company that is increasing collections and revenue at a double-digit rate. The average analyst target of $30.00 represents a 49.4% upside, while Raymond James boosted its target to $24 from $21 and maintained an Outperform rating.
Investors will get the next update on November 12, when Jefferson Capital announces its third-quarter earnings. Analysts expect revenue of approximately $181.9 million and EPS of $0.68 to $0.72, with a broader range of $0.65 to $0.76. The report will reveal whether record deployments and forward-flow agreements are leading to ongoing collection growth.
For now, costs are the concern. Operating expenses increased by 46% to $95.4 million, or 35% after adjusting for IPO-related items and stock compensation, owing in part to higher court costs as more collections are made through the legal channel. Adjusted EPS remained unchanged at $0.77 year-over-year, but net operating income dropped to $41.3 million, down from $47.7 million from Q2 2025. If legal expenditures continue to outpace collections, margins will narrow. See why costs are rising faster than growth here.
8. Opera Limited (NASDAQ:OPRA)
Forward P/E: 10.16
TTM Revenue Growth Rate: 23.24%
Number of Hedge Fund Holders: 19
Opera Limited develops the Opera and Opera GX browsers and makes money from search queries and advertising. On November 3, it previewed results for the third quarter of $182.8 million in revenue, up 20% and at the high end of its guidance of $181 million to $183 million. Adjusted EBITDA was $43.2 million, a 24% margin, above its guidance of $41 million to $43 million. The company’s advertising revenues increased by 22%, while query revenue grew by 17%. In October, the desktop browser hit 100 million monthly active users. Moreover, back in August, Opera lifted its full-year revenue outlook for 2026 to $734 million to $742 million and $172 million to $175 million in adjusted EBITDA.
At the same time, growth has moderated, from 25% in the second quarter to 20% in the third, and revenue fell just short of the top of its range. Opera has also delayed fourth-quarter guidance until the full results are released on November 17, stating that it wants to remain prudent. It remains to be seen whether its AI browser features would result in another guidance hike. Read whether AI browser growth can lead to another spike here.
7. Alkami Technology, Inc. (NASDAQ:ALKT)
Forward P/E: 12.32
TTM Revenue Growth Rate: 24.04%
Number of Hedge Fund Holders: 22
Alkami Technology, Inc. delivers cloud-based digital banking software to community and regional banks, as well as credit unions. The company’s third-quarter revenues increased 19% to $134.9 million, exceeding the high end of projections, while subscription revenue, accounting for 96% of total revenue, increased 20%. Annual recurring revenue increased 19% to $533 million, and adjusted EBITDA was $26.3 million, a 19.5% margin and more than 530 basis points more than a year ago. The platform now has 323 operational clients and 24.4 million registered users, up 13%. Alkami revised its full-year revenue forecast to $530.5 million to $532.0 million and adjusted EBITDA to $98 million to $99 million. In addition, the company now has a $56 million ARR backlog across 31 new clients.
That said, certain details are less flattering. Revenue per registered user grew just 5% to $21.88, gross margin fell to 63.1% due to a heavier mix of third-party products, and management claimed the quarter benefited from an easier prior-year comparison. At the same time, fourth-quarter guidance implies growth slowing to about 16% to 17%. Those pressures make execution increasingly important. See whether Alkami can turn its community banking niche into a bigger growths story here.
6. Coursera, Inc. (NYSE:COUR)
Forward P/E: 6.91
TTM Revenue Growth Rate: 44.35%
Number of Hedge Fund Holders: 27
Coursera, Inc., operates an online learning platform and has owned Udemy since May 11. The company’s revenue increased 94% to $376.7 million in the third quarter, however this was due to the consolidation of Udemy. Gross margin came in at 64%, with adjusted EBITDA of $61.5 million or a 16.3% margin. Management expects to achieve its $115 million annual net synergy target within eight months of completion, rather than the initial 24 months. It also unveiled Project Helix, an AI-native skills platform set to launch for enterprise customers in the first half of 2027.
The underlying picture is weak, as shares plunged nearly 19% following the report. Core subscription growth was more than offset by pressure on individual certificate subscriptions and Udemy’s transactional products, resulting in a $25.6 million GAAP net loss. The fourth-quarter revenue projection of $358 million to $366 million is lower than the third quarter, indicating flat enterprise growth and ongoing consumer decline. Moreover, earlier this year, management predicted a 2% to 4% fall in revenue in 2026. That leaves the profitability as the central test: Coursera’s lower sales multiple may look attractive next to competitor Duolingo’s, but the discount only matters if it can turn its enlarged revenue base into sustainable earnings, a trade-off explored in Insider Monkey’s comparison of Coursera and Duolingo.
5. Gold.com Inc. (NYSE:GOLD)
Forward P/E: 8.75
TTM Revenue Growth Rate: 132.39%
Number of Hedge Fund Holders: 27
Gold.com Inc. (formerly A-Mark Precious Metals) is a precious metals platform that engages in wholesale trading, minting, direct-to-consumer brands and secured lending. Revenue in fiscal 2027’s first quarter declined 11% to $3.27 billion, but the headline drop was driven by a $1.37 billion reduction in forward sales. Excluding this change, revenue jumped 51%, owing to higher gold and silver prices, increased ounces sold, and the acquisitions of Monex and Sunshine Minting.
The company’s gross profit increased 23% to $89.6 million, with a gross margin of 2.74%, up from 1.98% the previous year. Gold.com also rebounded to a GAAP profit of $1.6 million, or $0.05 per diluted share, after losing $0.9 million in the previous year’s quarter.
Sequential performance was less promising. Net income decreased 87% from the June quarter’s $12.2 million, while revenue fell from around $5.0 billion. Although the higher year-over-year gross profit is favorable, the modest bottom-line profit shows that a larger platform doesn’t necessarily result in higher earnings. That disparity between acquisition-led expansion and uneven profit conversion was central to Insider Monkey’s assessment of the fractures in Gold.com’s gold rush.
4. Precigen, Inc. (NASDAQ:PGEN)
Forward P/E: 8.39
TTM Revenue Growth Rate: 1875.05%
Number of Hedge Fund Holders: 27
Precigen, Inc. is a commercial-stage biopharmaceutical company with a growth engine of Papzimeos, a treatment for patients with recurrent respiratory papillomatosis. Third quarter revenue was $72.9 million, up 37% sequentially, and launch-to-date product revenue is now approximately $151 million.
The commercial ramp is now resulting in consistent profitability. Precigen reported net income of $35.8 million, or $0.08 per diluted share, compared to approximately $20 million in the second quarter. The company also recorded positive cash flow, exceeding its previous target of reaching cash flow breakeven by the end of 2026.
Concentration remains the main risk. Papzimeos accounted for more than 98% of quarterly revenue, making earnings heavily dependent on one product’s patient adoption, reimbursement, and competitive positioning. A newly licensed competitor treatment adds another test just as Precigen has passed its initial launch phase.
Nonetheless, a second consecutive profitable quarter and earlier-than-expected positive cash flow reinforce the case that Papzimeos can support the business rather than only generate launch-period sales. That progress adds to the commercial data supporting Patient Capital’s Precigen thesis, which connected successful launch execution to the company’s previous capital raise.
3. Kaiser Aluminum Corporation (NASDAQ:KALU)
Forward P/E: 10.67
TTM Revenue Growth Rate: 40.43%
Number of Hedge Fund Holders: 31
Kaiser Aluminum Corporation manufactures semi-fabricated specialty aluminum products for aerospace, packaging, general engineering, and automotive applications. The company’s third-quarter conversion revenue increased 25% to $439 million, while shipments rose 11% to 300 million pounds as the expanded Trentwood plant came back online. Aerospace and high-strength conversion revenue climbed 31%. Moreover, nine-month adjusted EBITDA came in at $379 million against $222 million a year earlier, with Moody’s upgrading the company to Ba3.
Nonetheless, the quarter disappointed investors, and shares fell by nearly 23% as adjusted earnings per share of $1.89 fell short of the analyst expectations of $2.37. Adjusted EBITDA of $84 million fell by roughly 50% from the second quarter, with the margin falling to 19.1% from 38.1% as metal price tailwinds faded and higher metal costs and outages weighed on results. Management now anticipates results at the lower end of its range. These factors have shifted the focus to whether Kaiser’s operational improvements can sustain earnings if favorable market circumstances return, a test that also supports Riverwater Partners’ premise for remaining competitive even if Middle East aluminum capacity returns faster.
2. UroGen Pharma Ltd. (NASDAQ:URGN)
Forward P/E: 12.33
TTM Revenue Growth Rate: 100.27%
Number of Hedge Fund Holders: 34
UroGen Pharma Ltd. markets Jelmyto and Zusduri, mitomycin-based medicines for treating urothelial cancers. Figures released November 4 showed Zusduri’s third-quarter revenue soared 35% sequentially to $68.0 million and overall revenue grew to $89.0 million from $27.5 million in the prior year. The net loss narrowed to $1.5 million, or $0.03 a share, from $33.3 million, or $0.69 a share. Zusduri’s prescriber base jumped to 662 from 452 at June 30, with repeat prescribers accounting for about 50%, up from 45%.
The pipeline has also evolved. The FDA accepted UroGen’s application for UGN-103 and set a target decision date of June 14, 2027. A newly issued patent is anticipated to protect Zusduri and, if accepted, UGN-103 until July 2044.
However, Jelmyto revenue declined to $21.0 million from $25.7 million the previous year, reflecting a $1.5 million adverse adjustment relating to Medicare’s discarded-drug program. Management reduced Jelmyto’s full-year outlook to around $90 million from $97 million to $101 million, citing adjustments and competitive clinical-trial enrollment affecting patient starts. Cash and securities fell to $90.5 million from $108.0 million at June 30, while operational expenses are estimated to be toward the upper end of the $260 million to $270 million range per year. Zusduri’s expansion is bringing UroGen closer to profitability, but rising development costs raise the question of whether its commercial engine can pay its pipeline goals.
1. Sunrun Inc. (NASDAQ:RUN)
Forward P/E: 12.49
TTM Revenue Growth Rate: 63.23%
Number of Hedge Fund Holders: 40
Sunrun Inc. is the largest US residential solar and battery provider. Third-quarter revenue jumped by 52% to $1.10 billion, with net income of $153.2 million, or $0.56 per share. Customer agreements and incentives revenue climbed 13% to $553.5 million, indicating ongoing development in its recurring-revenue business. Operating cash flow reached $301 million, with cash generation of $6 million, or $56 million excluding $50 million in equipment safe-harbor investments.
The direct business has returned to growth, and management is looking for new revenue streams from distributed power plant programs, data centers, and grid-edge applications. These prospects could allow Sunrun to earn more from its installed customer base rather than depending solely on new installations. Shares rose about 7% in after-hours trading as investors welcomed the revenue beat.
The weak point was guidance. Sunrun expects around $200 million in full-year cash generation, excluding equipment safe-harbor investments, compared to its previous estimate of $200 million to $375 million. Management attributed the shift to increased interest rates and sales onboarding, which remained somewhat behind forecasts. In addition, the company expects $60 million to $70 million in net safe-harbor equipment investments for the year. The earnings beat leaves a crucial question unanswered: whether growing direct sales can overcome financing pressures and deliver sustainable cash generation, the issue at the heart of Insider Monkey’s look into Sunrun’s pre-earnings rally and the operational challenges beneath it.
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