In an interview with CNBC, Thomas Martin, the Senior Portfolio Manager at GLOBALT Investments, highlighted that tech earnings are slowing and policy risks are rising. However, he remains positive on tech stocks as underlying fundamentals are strong. But he emphasized that diversification is key. He pointed out that while big tech hasn’t lost its luster yet, maybe it is time to look elsewhere.
Most investors focus on the big tech names like the Mag 7. As a result, there is a smaller probability of a mismatch between their valuation and their intrinsic value. The smaller tech names are usually overlooked. Hence, some of these stocks could offer deep value. Some US mid-cap stocks are deeply undervalued.
According to JP Morgan, US large-cap stocks have returned 12.6% annually over the past 10 years. Meanwhile, the same set of stocks have seen an EPS (earnings per share) growth of only 6.9% on an annualized basis, according to JP Morgan.
On the other hand, US mid-cap stocks have returned 9.3% annually over the past 10 years, with an EPS growth of 9.9% annually over the last 10 years. The large-cap stocks have seen superior returns despite lower earnings growth compared to mid-cap stocks in the same period. This underscores the value proposition of mid-cap tech stocks.
In the CNBC interview, Thomas Martin acknowledged that the Trump administration’s policies might have some effect on inflation and interest rates. However, according to Martin, those effects might be muted. That said, interest rates remain high, and smaller companies usually underperform during high interest rate regimes.
According to a quarterly report released by Pathstone in January 2025, smaller companies are facing several risks, including policy uncertainty and rising Treasury yields. As a result, while mid-cap tech stocks have potential, they need to be chosen carefully.
Mid-cap tech companies with strong balance sheets and decent profitability are better equipped to navigate through the high-interest rate period compared to those that are highly leveraged and have low profitability.
A trader in a financial institution using fundamentals analysis to select stocks for a portfolio.
Our Methodology
We have curated a list of 10 mid-cap companies after considering the risks involved in investing in mid-cap companies. We used Finviz to include only companies with a market cap of $2 billion up to $10 billion, as we are looking for mid-cap stocks. As for the sector, we chose technology.
To weed out unwanted, low-quality mid-cap stocks, we chose only companies with decent profitability. So, we weeded out the companies with an operating margin of less than 10%. Since we want companies with a solid balance sheet, we set the long-term debt-to-equity ratio at under 0.5. We also chose companies with an average analyst upside of at least 10%. The stocks are sorted in ascending order of their upside potential. Additionally, we have mentioned the hedge fund sentiment for each stock, as of Q4 2024.
Note: All data was recorded on March 10, 2025.
At Insider Monkey we are obsessed with 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).
10 Best Mid Cap Tech Stocks to Buy Now
10. Amdocs Limited (NASDAQ:DOX)
Upside Potential: 14.97%
Market Capitalization: $9.81 Billion
Number of Hedge Fund Holders: 29
Amdocs Limited (NASDAQ:DOX) provides software and other services to companies to manage their customer relationships, billing systems, and digital services, primarily in the telecommunications and media industries. For example, they help telecom companies manage subscriptions, payments, and service delivery for mobile plans and so on.
While the company’s net margin has been declining over the last few years, that might be changing. The company reported a net margin of 9.7% in the fiscal year 2024. However, in the fourth quarter of the fiscal year, it reported a net margin of 13.6%, sharply expanding from the previous quarters.
Amdocs Limited’s (NASDAQ:DOX) revenue grew by a paltry 2.4% during the fiscal year 2024. However, the company said in its letter to shareholders that its cloud revenue grew in strong double digits. Revenue from its cloud activities makes up 25% of the company’s total revenue. This could drive growth going forward.
The company said that generative AI (GenAI) has been its priority. Amdocs Limited (NASDAQ:DOX) progressed its GenAI strategy through collaborations with NVIDIA, Microsoft, Amazon Web Services (AWS), and others.
9. Exlservice Holdings Inc. (NASDAQ:EXLS)
Upside Potential: 15.59%
Market Capitalization: $7.49 Billion
Number of Hedge Fund Holders: 27
Exlservice Holdings Inc. (NASDAQ:EXLS) provides business process outsourcing (BPO) and digital transformation services to companies across various industries. They focus on assisting their clients with improving efficiency and reducing costs by outsourcing tasks and automating processes.
The company also helps other companies automate and digitize their processes through artificial intelligence and data analytics. This allows their clients to improve their performance and optimize decision-making. Exlservice Holdings Inc. (NASDAQ:EXLS) also helps clients re-engineer their operations and improve overall efficiency. The company has grown steadily over the last five years at a solid rate of 17.7% per year. Exlservice Holdings Inc. (NASDAQ:EXLS) also expanded its net margin to 10.8% in 2024.
The company differentiates itself by focusing on the integration of AI into clients’ workflows and ensuring seamless interaction with their data assets. It is shifting to a new operating model focused on strategic growth units to enhance data and AI capabilities. AI-driven solutions, such as eaccelerate.ai, are improving operational efficiency for clients in various sectors, including healthcare and insurance. The company said that its demand remains strong, in particular, growth driven by AI and data-related IT spending. This trend has continued into Q1 2025, with the company confident in its growth prospects.
8. Universal Display Corporation (NASDAQ:OLED)
Upside Potential: 18.11%
Market Capitalization: $7.06 Billion
Number of Hedge Fund Holders: 3o
Universal Display Corporation (NASDAQ:OLED) manufactures OLED (Organic Light Emitting Diode) technology, which is essential in displays for electronics like smartphones, televisions, and smartwatches, among others. The company makes money through royalties and licensing fees from these companies. Universal Display Corporation (NASDAQ:OLED) also makes and sells materials required to make the OLED displays. The company also sells them to competing display manufacturers.
The company’s revenue has been growing steadily, and it is highly profitable with a net margin of a solid 34.2%. On January 2, 2025, Oppenheimer analyst Martin Yang reiterated the firm’s outperform rating on the stock. However, it reduced its price target to $200 from $220. That said, Yang said that his conviction on the stock to outperform over the next 12 months is higher than before, despite the stock’s disappointing performance since the disappointing earnings result in Q3.
Oppenheimer believes the current price has priced in the near-term weakness in the markets for OLED displays. While Oppenheimer expects the management to report soft guidance for the current year, analysts expect the company’s revenue to grow by 14%.
7. Descartes Systems Group Inc. (NASDAQ:DSGX)
Upside Potential: 22.16%
Market Capitalization: $8.54 Billion
Number of Hedge Fund Holders: 22
Descartes Systems Group Inc. (NASDAQ:DSGX) is a company that provides cloud-based software and logistics solutions on a subscription basis. It helps companies manage their supply chains, shipping, and transportation efficiently. Their software helps companies improve the movement of goods, including customs compliance, routing, shipment tracking, and warehouse management.
Descartes Systems Group Inc. (NASDAQ:DSGX) has been able to grow steadily and improve margins. It has grown at an annual rate of 14% per year over the last five years. Meanwhile, its net margin stands at 22% as of the fiscal year 2024. The company reported a 13% increase in Q4 revenue on a year-over-year basis, which reached $167.5 million.
Descartes Systems Group Inc. (NASDAQ:DSGX) sees significant opportunities for AI in its operations, from customer support to product development. Some of the notable AI applications include improvements in trade intelligence, fleet management, and machine learning for better decision-making. The company is also leveraging Internet of Things (IoT) and AI to improve operational efficiency and customer decision-making. It expects AI to play a large role in future growth.
6. AppFolio Inc. (NASDAQ:APPF)
Upside Potential: 27.94%
Market Capitalization: $7.65 Billion
Number of Hedge Fund Holders: 40
AppFolio Inc. (NASDAQ:APPF) provides cloud-based software solutions for its customers in the property management and legal industries. The company’s software helps these businesses manage non-core tasks like accounting, billing, leasing, and customer communication more efficiently.
For property managers, AppFolio Inc. (NASDAQ:APPF) provides tools to help with tasks like collecting rent, tracking payments, and managing tenant communications. Meanwhile, for law firms, it offers software that helps manage case files, billing, and client communication. It also offers ongoing support and software updates.
Not only has the company’s revenue grown at a robust pace of 26.5% over the last five years, but its net margin has also seen a significant expansion. As of 2024, the net margin stood at a solid 25.7%. In its note on January 10, 2025, KeyBanc attributed the performance to its expanding average revenue per user. KeyBanc pointed out that the company’s stock is fairly valued on a free cash flow basis and that the stock’s current risk/reward is balanced.
5. Nova Ltd (NASDAQ:NVMI)
Upside Potential: 33.47%
Market Capitalization: $6.58 Billion
Number of Hedge Fund Holders: 26
Nova Ltd (NASDAQ:NVMI) provides equipment and solutions that cater mostly to the semiconductor and materials industries. They sell advanced measurement and monitoring systems to assist these companies in improving their production processes.
Nova Ltd (NASDAQ:NVMI) is in a high growth phase, with its revenue growing nearly 30% in the previous year to $672 million. Nova’s margins have also been expanding consistently. The company’s net margin stood at a healthy 27.3% in 2024. On January 6, 2025, Citi upgraded Nova Ltd’s (NASDAQ:NVMI) rating from Neutral to Buy. The brokerage also increased the stock’s price target from $226 to $240.
According to Citi, Nova Ltd (NASDAQ:NVMI) is likely to outperform, thanks to its huge product range and its diversified customer base. These factors are likely to enable Nova’s tools to surpass the overall wafer fabrication equipment market performance in 2025.
4. Nice Ltd. (NASDAQ:NICE)
Upside Potential: 38.8%
Market Capitalization: $8.84 Billion
Number of Hedge Fund Holders: 28
Nice Ltd. (NASDAQ:NICE) is a Software-as-a-service company that provides its client companies cloud-based software solutions to improve customer experience, security, and operational efficiency.
The company also offers automation solutions to make processes more efficient. This includes automating tasks that would normally require human input. Nice Ltd. (NASDAQ:NICE) also offers software to its customers to help with fraud prevention and security for financial transactions and customer identity protection, among other areas.
The company has been growing at a steady pace of just over 13% annually over the last five years. Its revenue for the fiscal year 2024 stood at $2.74 billion. Moreover, it has been able to increase its net margin during each year in that period. As of fiscal year 2024, it stood at 16.2%. The company saw solid performance in the Financial Crime and Compliance sector.
On February 21, 2025, Cantor Fitzgerald analyst Thomas Blakey reduced its price target from $175 to $161. The analyst maintained a Neutral rating on the stock.
3. MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI)
Upside Potential: 44.19%
Market Capitalization: $7.95 Billion
Number of Hedge Fund Holders: 38
MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) designs and makes high-performance semiconductor products that are used in several industries, including telecommunications, aerospace, defense, and industrial markets. The company manufactures chips and components that are used in various electronic systems. These include wireless communication networks, satellite systems, and radar. The company also offers customized solutions, especially data centers, 5G networks, and industrial automation. The company customizes its products to suit the needs of different industries. This allows them to work with a wide range of clients.
MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) provides high-quality, reliable products and custom solutions. This helps the company build long-term relationships with its clients. As a result, it generates repeat sales and has a sustainable business.
The company’s revenue grew by a decent 12.5% last year, while maintaining a solid net margin of 10.5%. Cash flow remained strong, enabling acquisitions and future investments. In Q4, the company achieved a record revenue of $200.7 million, a 5.4% YoY increase, driven by growth across all markets.
MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) is focused on building a diversified semiconductor portfolio to capture more market share. The company expects continued strong performance in its data center segment. It is well-positioned to support advancements in 1.6T and 800G technologies. Meanwhile, it is also trying to improve margins through acquisitions and operational efficiencies. The company plans to maintain a diversified portfolio to address various customer needs across various data center solutions.
2. Pegasystems Inc. (NASDAQ:PEGA)
Upside Potential: 45.56%
Market Capitalization: $6.26 Billion
Number of Hedge Fund Holders: 30
Pegasystems Inc. (NASDAQ:PEGA) is an application software company. It helps enterprises improve their customer engagement and assists them with data-driven decisions. Pegasystems also helps other companies manage customer relationships. It operates globally, including in the US, the Americas, the United Kingdom, Europe, the Middle East, Africa, and the Asia-Pacific.
The company’s suite of solutions can be customized to service several industries including healthcare and finance, among others. In the Fiscal Year 2024, Pegasystems’ revenue grew only 4.51% to $1.50 billion. However, analysts expect the revenue growth to accelerate.
On January 14, 2025, KeyBanc Capital Markets initiated coverage of Pegasystems Inc. (NASDAQ:PEGA) with an “Overweight” rating and a $118 price target. The brokerage cited that the company’s growth could be driven by its AI-driven product mix and its expanding cloud migration. According to brokerage, the company is trading at attractive valuations compared to its software peers.
1. Onto Innovation Inc. (NASDAQ:ONTO)
Upside Potential: 85.87%
Market Capitalization: $6.60 Billion
Number of Hedge Fund Holders: 50
Onto Innovation Inc. (NASDAQ:ONTO) makes money by selling advanced tools and software to companies that make semiconductors. The company makes machines that help semiconductor companies test, design, and improve their semiconductors. Onto Innovation Inc. (NASDAQ:ONTO) also provides software that helps clients improve their production processes and make sense of data. Additionally, it provides continuous maintenance and updates for the machines and software it sells.
The company’s revenue has grown at a pace of over 15% annually over the last five years. The company is also highly profitable. During the same period, the company’s net margin expanded from 5.6% to 20.4%. The company expects margins to expand further.
The company’s key growth drivers for the previous fiscal year included AI packaging, advanced packaging, and power devices. It saw significant demand for inspection tools, especially in 2.5D Logic (a packaging methodology for semiconductors) and HBM (high bandwidth memory) processes. Both areas are seeing increased demand as semiconductor needs for AI are burgeoning. Onto Innovation Inc. (NASDAQ:ONTO) is also likely to benefit from TSMC’s planned increase in CapEx for advanced packaging. The company expects increased demand for process control equipment as customers ramp up capacity for advanced packaging.
While we acknowledge the growth potential of ONTO, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ONTO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
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