In this article, we’re going to talk about the 12 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.
Considering that a recession seems unlikely, and a Fed cut of 50 basis point rate seems exaggerated given the economy’s slow but steady growth, we’re here with a list of the 12 best small-cap tech stocks to buy to use today’s market volatility for future gains.
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).
12 Best Small Cap Tech Stocks to Buy
12. Dropbox Inc. (NASDAQ:DBX)
Market Capitalization as of September 11: $7.61 billion
Number of Hedge Fund Holders: 41
Dropbox Inc. (NASDAQ:DBX) is a leading file hosting service that offers cloud storage, file synchronization, personal cloud, and client software to individuals and businesses. It is known for its user-friendly interface and integration with various devices and applications and has positioned itself as a key player in the digital workspace industry.
The company had 18.22 million paying users by the end of Q2 2024, adding approximately 63,000 net new paying users on a sequential basis. It is positioned as an attractive investment opportunity within the tech sector, with 41 hedge funds currently long in the company. The highest stake is valued at $231,760,816 by Renaissance Technologies.
In Q2, it launched a redesigned mobile web experience, extending the experience it launched to web-based customers last fall. Later, the company simplified the mobile trial process by providing clear explanations and reminders. This was followed by a change in an old policy that required customers to buy additional products for all employees, now they can buy them for specific subsets of their Teams.
The second quarter this year recorded a 1.93% year-over-year improvement, generating a revenue of $634.50 million. The average revenue per paying user was $139.93. It also repurchased just over 11 million shares, spending $260 million in the same period.
Currently, it’s working on a feature that lets customers buy products individually, without needing a subscription. This will make it easier to sell company products, especially Dash.
Dropbox Inc.’s (NASDAQ:DBX) AI-powered products, like Dropbox Dash, offer significant growth potential. By improving user experience and productivity, it can expand its market share in the enterprise segment. Campaigns aimed at increasing product visibility and driving sales all position the company for strong growth.
11. Wix.Com Ltd. (NASDAQ:WIX)
Market Capitalization as of September 11: $8.55 billion
Number of Hedge Fund Holders: 42
Wix.Com Ltd. (NASDAQ:WIX) is an Israeli software company that provides cloud-based web development services, offering tools for creating and managing HTML5 websites and mobile sites using online drag-and-drop editing, making it easy for people with no coding experience to build professional-looking websites.
The firm has launched a product called the Wix Studio that helps businesses create websites easily. It’s becoming more popular as more businesses look for simple ways to set up their online presence. Wix Studio continues to grow, with new features and tools for partners, also recently launching a Figma plugin that has been well-received. Studio bookings increased 20% quarter-over-quarter in Q2.
For the second quarter of 2024, the company generated a total revenue of $435.75 million, recording a year-over-year improvement of 11.74%. The commerce business performed extremely well with transaction revenue growing 21%.
The growth was driven by an impressive 15% year-over-year increase in overall bookings growth, which was at 10% in Q1. The earnings per share were $1.67.
The company operates a total of 17 AI business assistants. In June, it launched AI tools for the mobile app builder. This lets users create and edit apps using AI chat. There are additional AI features to help users find blog topics, generate outlines and content, and create images, making it easier to create engaging content.
Wix.Com Ltd.’s (NASDAQ:WIX) AI technology is a key competitive advantage and will drive future growth. The company has made significant progress in the first half of 2024 and is well-positioned for continued success. As of June 30, 42 hedge funds held positions in the company, with the largest one valued at $298,574,390 by Starboard Value LP.
Here is what Baron Global Advantage Fund has to say about Wix.com Ltd. (NASDAQ:WIX) in its Q3 2023 investor letter:
“Our biggest add in the quarter was Wix.com Ltd. (NASDAQ:WIX). Wix provides a cloudbased software to help micro-businesses build and maintain websites. We have been investors in Wix since 2017, and despite decelerating sales growth due demand pulling forward during the early days of COVID, which has impacted the share price, we believe the company is making significant progress towards profitability and expanding its opportunity in the partners (professional website development) segment. After years of penalizing nearterm profitability with investments in sales and marketing, the company is now taking advantage of its leading brand name to acquire incremental users mostly organically, which enabled it to improve non-GAAP operating margins by 21% year-over-year to 18% for the most recently reported quarter. During its Investor Day, the company further guided to FCF margin targets of 19% in 2024 and 25% in 2025, which we believe could prove conservative as the mix of revenues shifts over time to the partners segment, which is structurally more profitable than the do-it-yourself segment. This is namely because Wix only needs to acquire a partner once, while the partner serves as an external sales force for Wix, creating a highly effective subscriber acquisition channel. Additionally, businesses that hire partners tend to have less churn, have higher business volumes, and adopt additional modules from Wix to drive higher revenue per subscription. While the advancements in AI remain a risk to be cognizant of, we believe Wix will benefit from AI. The company has been investing in AI for over five years now. AI lowers the hurdles for starting new businesses and designing websites (through Wix’s AI site generator) makes existing businesses more successful over time. We believe that Wix trades at an attractive valuation with an FCF yield of over 5%, despite profitability being penalized due to reinvestments back into the partners segment, which investors value below zero (masking the profitability of the do-it-yourself segment). As the partners segment becomes profitable over the next few years, we believe Wix’s overall FCF will move much higher.
10. NCR Voyix Corp. (NYSE:VYX)
Market Capitalization as of September 11: $1.74 billion
Number of Hedge Fund Holders: 43
NCR Voyix Corp. (NYSE: VYX) is a leading global provider of digital commerce solutions, specializing in transforming retail stores, restaurant systems, credit unions, and digital banking experiences through its comprehensive platform-led SaaS and services capabilities, helping businesses enhance their customer interactions and operations using technology. It serves over 800 banks and credit unions in the U.S., including nearly 21 million active users.
The company’s revenue fell by 55.89% year-over-year in Q2 2024. The earnings per share were $0.09. NCR Voyix Corp. (NYSE:VYX) is selling its digital banking segment, which could boost performance. It will be divested to Veritas Capital for a $2.45 billion purchase price, plus up to $100 million of contingent consideration. By the end of 2023, this segment had a revenue of $579 million, employing over 1,600 employees across 7 global facilities and ~1,300 financial institutions in North America.
It recently partnered with Ennoconn Corp., a leading hardware provider for both point-of-sale and self-checkout. The company also implemented a multiphase cost-alignment program, which began with the elimination of approximately 800 staff globally, at the end of Q2.
The company’s recent performance has not been spectacular, but these issues are being resolved — a sale could be a positive move in this direction. The full-year guidance for 2024 was updated to remove the revenue associated with the Digital Banking business. 43 hedge funds still hold long positions in the company, with a collective 6,286,029 shares. The highest stake amounts to $77,632,458, held by Engaged Capital.
ClearBridge Mid Cap Strategy stated the following regarding NCR Voyix Corporation (NYSE:VYX) in its first quarter 2024 investor letter:
“Stock selection in the IT sector also weighed on performance. Investor excitement for AI has driven outperformance in hypergrowth companies but weighed on several of our holdings with more conservative outlooks, which are typically appropriate this early in the year. This included NCR Voyix Corporation (NYSE:VYX), which provides software, consulting and technology services for digital commerce and automatic teller machines (ATMs). Under new direction since the spinoff of NCR Atleos in the fourth quarter of 2023, the stock is still looking for solidification of its investor base. However, we are encouraged by the company’s focus on recurring revenue streams, which should allow it to grow at an attractive pace. Additionally, we believe that NCR Voyix’s current valuation is approximately equivalent to the value of its digital banking segment alone, which should merit further upward price movement.”
9. Silicon Motion Technology Corp. (NASDAQ:SIMO)
Market Capitalization as of September 11: $1.92 billion
Number of Hedge Fund Holders: 43
Silicon Motion Technology Corp. (NASDAQ:SIMO) is an American-Taiwanese company involved in developing NAND flash controller integrated circuits for solid-state storage devices. It makes chips that help other companies make better flash memory devices, and are used in things like smartphones, tablets, computers, and USB drives, making these devices faster, and more reliable.
The company also provides InstantView docking technology, which allows its users to mirror the screen of any laptop, Chromebook, or Android phone without downloading the driver.
This quarter, the revenue from NAND flash maker grew nearly 15% sequentially, accounting for more than 60% of the total revenue, which was $210.67 million. This revenue for Q2 this year was 50.09% higher than Q2 in 2023. The growth is attributed to strong demand from PC and smartphone device makers as original equipment manufacturers (OEMs).
NAND pricing is increasing and expected to move higher throughout the remainder of the year and early 2025, driven by demand from data center and enterprise storage applications. Management says the company has unmatched technical and financial resources to build next-generation controllers. Such claims build investor trust. As of June 30, 43 hedge funds are long in the company, with the highest stake valued at $67,975,717 by Pertento Partners, of a total of 839,310 shares.
Silicon Motion Technology Corp.’s (NASDAQ:SIMO) varied range of products and leadership in technology is projected to give a 25-30% increase in revenue each year. With the core business growing at an impressive rate, and the growing integration of electronics and semiconductors throughout networking communication devices, the company appears to be well-positioned to benefit.
Ave Maria Growth Fund stated the following regarding Silicon Motion Technology Corporation (NASDAQ:SIMO) in its first quarter 2024 investor letter:
“Silicon Motion Technology Corporation (NASDAQ:SIMO) is a fabless semiconductor company that specializes in low-end flash memory controllers. Memory manufacturers often design their own controllers in-house, but the rising cost of developing a chip is making it increasingly beneficial to outsource the more commoditized low-end controller development to a third party like Silicon Motion. This outsourcing trend is set to move from consumer applications into the server end market, and Silicon Motion’s new enterprise controller is well positioned to capitalize on the growth.”
8. BILL Holdings Inc. (NYSE:BILL)
Market Capitalization as of September 11: $5.69 billion
Number of Hedge Fund Holders: 45
BILL Holdings Inc. (NYSE:BILL) provides financial automation software for small and midsize businesses worldwide, offering a cloud-based platform that helps businesses streamline their financial operations, including invoicing, payments, expense management, and more, helping businesses save time and money.
In the fiscal full year 2024, the network members increased to 7.1 million, up 21% year-over-year as the company further built platform capabilities for its suppliers. It served nearly half a million businesses this year.
2024 featured the launch of a new platform that combines billing and expense management solutions. It has data and analytics tools to help businesses understand their cash flow and uses AI to make the process user-friendly. It also partnered with Xero to offer onboarding and bill payment solutions to its customers.
At the end of fiscal 2024, the company was held by 45 hedge funds. The highest stake amounts to $181,792,786 by Abdiel Capital Advisors. While concluding this fiscal year, the management announced that the board authorized a new $300 million share repurchase program.
The company’s total revenue for the fiscal full year 2024 was $1.3 billion, up 22% year-over-year and core revenue exceeded $1 billion for the first time, serving nearly half a million businesses. In FQ4 2024 alone, it generated $343.67 million in revenue, recording an improvement of 16.11% year-over-year.
This is a leading financial automation platform that’s helping businesses streamline their operations. It’s a valuable tool for accounting firms and is driving growth in client advisory practices. With BILL Holdings Inc. (NYSE:BILL), company clients can stay ahead of the competition, all while positioning the company itself for strong growth.
Parnassus Mid Cap Fund stated the following regarding BILL Holdings, Inc. (NYSE:BILL) in its Q2 2024 investor letter:
“During the quarter, we increased our overweight allocation to the Information Technology sector. In the Software industry, we initiated a new position in BILL Holdings, Inc. (NYSE:BILL), which runs leading payments platform Bill.com. BILL presented an opportunity to own a category-leading SMB-focused payments automation platform (Bill.com) at a historically attractive valuation. We believe the market overextrapolated near-term cyclical growth headwinds and underestimated the company’s long-term secular growth opportunity.”
7. 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.”
6. Procore Technologies Inc. (NYSE:PCOR)
Market Capitalization as of September 11: $7.86 billion
Number of Hedge Fund Holders: 47
Procore Technologies Inc. (NYSE:PCOR) is an American construction management software as a service company that provides construction management software. It offers a cloud-based platform that helps construction professionals streamline their operations, improve collaboration, and manage projects more efficiently, providing a central hub for construction teams.
Total revenue in Q2 was $284.35 million, up 24.42% year-over-year, and international revenue grew 31% year-over-year. The company earned $4 million more than it expected for this quarter due to successful project implementations. Without this additional revenue, the growth would have been 22.8%. However, management says they don’t expect to earn this much from project implementations in the second half of 2024.
Number of customers contributing ~$100,000 in annual recurring revenue grew 20% year-over-year to 2,191. Overall, Procore Technologies Inc. (NYSE:PCOR) added 152 net new organic customers this quarter, ending with a total of 16,750 organic customers.
The company is actively working to sell to government agencies and expand its partnerships. It’s also making changes to its sales and marketing teams. Such expansions improve investor sentiments. It is currently held by 47 hedge funds. The largest stakeholder is XN Exponent Advisors with a position of $186,215,124.
Significant innovations to the Procore platform, including enhancements to Maps and Locations and a new Microsoft Teams integration, were announced on June 12. Procore Technologies launched the FedRAMP authorization process on July 16. The company was recognized by US News as one of the Best Companies to Work For on August 1.
The company’s full-year revenue guidance is over $1 billion. Procore Technologies Inc.’s (NYSE:PCOR) new model is designed to strengthen customer relationships, improve product adoption, and enhance overall efficiency. This strategic shift will position the company for continued growth and leadership in the construction industry.
Baron Discovery Fund stated the following regarding Procore Technologies, Inc. (NYSE:PCOR) in its Q2 2024 investor letter:
“We initiated an investment in Procore Technologies, Inc. (NYSE:PCOR) during the quarter. Founded in 2002, Procore provides cloud-based construction management software that helps general contractors, subcontractors, and asset owners manage every step of the construction process. Procore’s product suite includes project execution (storing and updating blueprints, designs, work orders and project schedules in a single system of record), pre-construction (managing bids, permitting, and approvals), workforce management (scheduling worker hours and recording safety compliance), financial management (budgeting and invoicing), and data analytics. Together these products help contractors execute projects more efficiently, plan more accurately, avoid costly rework, improve worker safety, and generate better margins. This has led to exceptionally low customer churn.
Procore serves a large and growing addressable market – annual construction volume exceeds $2 trillion in the U.S. alone – that is still in the early innings of digitization and technology adoption. The company has a leading market share in the sector, with more than 16,500 construction firms and asset owners using its software to manage billions of dollars of annual project volume. Yet Procore is still only 12% penetrated in terms of U.S. construction volume and 2% penetrated internationally. We believe the company has several competitive advantages that will drive further share capture and strong growth. First, Procore is the only cloud-native technology vendor that addresses all stages of the project life cycle with a single, integrated interface and data model. Second, Procore was the first vendor to price its platform using a “take-rate” model, charging a percentage fee against its customers’ total construction volume. Compared to seat-based license models offered by many competitors, this approach has encouraged far more industry practitioners to trial and use Procore products. As of last year, over 500,000 collaborator companies were interacting with its product, driving a strong pipeline for new customer wins.
We see a long runway for growth through new customer additions and expansion in existing accounts. The company has maintained low to mid-double-digit revenue expansion rates for existing customers by managing more project volume and by cross-selling additional product modules. Recent product innovations like Procore Pay (managing payments for the various vendors and subcontractors on a given project) and geospatial mapping (for larger civil engineering projects) should improve the company’s wallet share over time. Procore is cash flow positive today and has been increasing its margins meaningfully over the past two years. We think the business can continue to grow at a healthy rate while further expanding free cash flow margins to north of 20% as it benefits from market share capture, higher take rates, and operating leverage. This should lead to good earnings growth and bode well for the stock long term.”
5. LYFT Inc. (NASDAQ:LYFT)
Market Capitalization as of September 11: $4.55 billion
Number of Hedge Fund Holders: 53
LYFT Inc. (NASDAQ:LYFT) is an American company offering mobility as a service through ride-hailing, vehicles for hire, motorized scooters, a bicycle-sharing system, rental cars, and food delivery across the US and select cities in Canada. It provides a platform that connects passengers with drivers, allowing users to request rides through a mobile app.
Earlier this year, the company launched a program to ensure that drivers earn at least 70% of their fare. Driver and rider engagement hit a record high in Q2 2024, with 23.7 million quarterly active riders, up over 10% year-on-year, including 34% more women and nonbinary drivers year-over-year, due to the success of Women+ Connect.
In Q2, the average Primetime amount included on each ride declined by 25% versus Q1, and that contributed to better conversion rates. So, the company is working on new features for regular riders, one of which is called Price Lock, where riders can buy a monthly subscription with a fixed price for their usual routes. Primetime won’t disappear completely, but it will make the process more predictable through Price Lock.
The Lyft Media segment is also doing well, with revenue up over 70%. It signed 44 new deals in the second quarter, including T-Mobile and Activision, and re-signed several more, including Amazon, Fidelity, and NBCUniversal.
Total revenue in Q2 was $1.44 billion, with a 40.64% year-over-year improvement. The earnings per share were $0.24.
53 hedge funds are long in the company, with the highest stake at $112,253,724 by Appaloosa Management LP. It is well-positioned to capitalize on the growth of autonomous vehicles due to its existing network and expertise in fleet management.
ClearBridge Multi Cap Growth Strategy made the following comment about Lyft, Inc. (NASDAQ:LYFT) in its Q2 2023 investor letter:
“The sale of rideshare provider Lyft, Inc. (NASDAQ:LYFT), similar to our moves in communication services, prunes a smaller position to consolidate the portfolio in our highest conviction ideas. We initially purchased Lyft in May 2021 when rideshare volumes were still depressed due to COVID-19. While Lyft was a clear #2 behind Uber in domestic rideshare, we believed it was a cleaner way to play the U.S. recovery due to the focused nature of its business. However, poor execution and the uneven nature of the U.S. recovery, with West Coast markets where Lyft has historically had greater exposure lagging due to a lack of return to office work, further weakened its market position. In March, Lyft announced co-founder Logan Green would step down as CEO with David Risher, a former Amazon executive, taking his place. While Risher has laid out ambitions to drive Lyft’s market share higher, we believe doing so will require more than a few quarters fix. Furthermore, while the company has looked for areas to right size their cost base, we see necessary investments in price, service levels and product differentiation to drive this turnaround further pushing out the path to improved profitability.”
4. Core Scientific Inc. (NASDAQ:CORZ)
Market Capitalization as of September 11: $2.58 billion
Number of Hedge Fund Holders: 53
Core Scientific Inc. (NASDAQ:CORZ) is a leader in digital infrastructure for bitcoin mining and high-performance computing and operates dedicated, purpose-built facilities for digital asset mining. It is a premier provider of digital infrastructure, software, and hosting services. It is the first digital asset miner in North America to achieve 100, 250, and 500 megawatts of operating capacity.
It announced a contract with CoreWeave to lease a 16-megawatt data center in Austin for high-performance computing (HPC) hosting. This data center was delivered more than 30 days ahead of schedule, and revenue generation from it began in the second quarter of 2024.
The revenue from Bitcoin mining increased by 14% in Q2 compared to the same period last year. This was mainly due to a higher Bitcoin price and an increase in mining operations. However, the number of bitcoins earned decreased by 52% due to the Bitcoin halving event and increased competition. The costs for bitcoin mining increased due to depreciation, higher wages, and stock-based compensation.
Core Scientific Inc. (NASDAQ:CORZ) had a successful second quarter, despite the Bitcoin halving event in April. The company earned $141.10 million in revenue (including $5.5 million in HPC hosting revenue from the Austin data center), and improved 11.18% from Q2 2024, and mined 1,680 bitcoins.
The company earns most of its revenue from mining bitcoin and is expanding into high-performance computing. This expansion could generate nearly $6.7 billion in revenue over the next 12 years. Core Scientific’s strong position in digital infrastructure puts it in a good position for future growth. 53 hedge funds hold long positions in it.
3. Twilio Inc. (NYSE:TWLO)
Market Capitalization as of September 11: $9.20 billion
Number of Hedge Fund Holders: 54
Twilio Inc. (NYSE:TWLO) is an American cloud communications company that provides programmable communication tools for making and receiving phone calls, sending and receiving text messages, and performing other audio/video communication functions using its web service APIs. It enables businesses to engage with their customers in a more personalized and effective way.
For the second quarter of 2024, the total revenues recorded by the company were $1.08 billion, up by 4% year-over-year. The earnings per share were $0.87. It reported more than 316,000 active customer accounts as of June 30, compared to over 304,000 active customer accounts at the same time last year.
There was an improvement in its customer spending, with its dollar-based net expansion rate coming at ~102% in Q2. This is due to the adoption of AI in the customer service space. Moving forward, the company’s momentum is expected to be supported by strong partnerships with ISVs. It is also seeing increased demand for our international messaging services.
During Q2 2024, the count of hedge funds holding positions in Twilio Inc. (NYSE:TWLO) grew to 54 from 45 in the prior quarter. Now, the largest position is valued at $338,552,264 by Generation Investment Management.
A company report found that 84% of businesses think it provides good customer service, but only 54% of customers agree. This is because businesses need help understanding their customers’ data. By combining its communication tools, data, and AI, Twilio Inc. (NYSE:TWLO) can help businesses improve customer service.
Its stock has underperformed the market recently due to slower growth and weak customer spending, but new AI tools could help it improve customer service and grow its business. The overall revenue is expected to grow by nearly 20% over the next 5 years, paving the way for growth.
Aristotle Atlantic Focus Growth Strategy made the following comment about Twilio Inc. (NYSE:TWLO) in its Q4 2022 investor letter:
“We sold Twilio Inc. (NYSE:TWLO) and thereby reduced our subsector weight in software. The company reported a decent third quarter, but disappointed on fourth quarter 2022, full year 2023, and long-term guidance. The company is seeing macroeconomic headwinds and a slowdown spreading from technology, social media and cryptocurrency to retail and e-commerce. The other negative disclosure and a driver of this gross margin “miss” was that Twilio’s software sales are not accelerating at the rate that we expected. We are disappointed with this lower topline and low operating margin improvement guidance. The business transformation is taking longer than expected, and there is the heightened possibility that the new software growth could be stifled by more formidable competition as Twilio has made too many missteps.”
2. Smartsheet Inc. (NYSE:SMAR)
Market Capitalization as of September 11: $7.12 billion
Number of Hedge Fund Holders: 57
Smartsheet Inc. (NYSE:SMAR) is a cloud-based work management platform offering collaborative workspaces by helping teams plan, track, and manage projects and tasks. It offers features like Gantt charts, Kanban boards, and real-time collaboration tools, making it a popular choice for businesses of all sizes.
In June, the company launched a new pricing and packaging model, that offers more flexibility and options for customers. It simplifies pricing, allows for more users, and provides broader access to features. 1000s of new customers have started using the new pricing model.
Smartsheet Inc. (NYSE:SMAR) had a strong second quarter of fiscal 2025, with 75 customers increasing their spending by over $100,000. It now has 77 customers spending over $1 million per year, which is a 50% increase from last year. The annual recurring revenue is $1.093 billion, and the company over 15.3 million users. Total revenue generated in FQ2 2025 was $276.41 million, recording a 17.33% improvement from the same quarter last fiscal year.
It signed new customers like Intuit, Skechers, and City National Bank. There was a recent large deal with a Big 4 consulting firm to use Smartsheet Inc. (NYSE:SMAR) to streamline their client engagement. This customer estimates that Smartsheet Inc. (NYSE:SMAR) saved their team 39,000 working hours and reduced their project delivery costs by nearly 12%.
With strong growth, innovative features, and a focus on customer satisfaction, the company is well-positioned for continued success. It is held by 57 hedge funds, of which the largest position is $285,050,902 by Vista Equity Partners.
Brown Capital Management Small Company Fund stated the following regarding Smartsheet Inc. (NYSE:SMAR) in its Q2 2024 investor letter:
“Second, our portfolio holdings are well positioned to exploit future opportunities. We invest in many companies that are producing AI-based applications for their businesses and customers. Examples include enterprise-software companies with industry-specific data, such as Appfolio (APPF) and Smartsheet Inc. (NYSE:SMAR). Recently Appfolio released updated Generative AI features that help users increase productivity through automation. Smartsheet has integrated AI features into its services, including formula generation, data analytics and a chat bot. Investing in AI now, even though overall revenue growth is depressed, will leave these companies with even better products. Additionally, adoption of these tools could lead to more licenses sold as well as higher-priced licenses per user.”
1. Elastic NV (NYSE:ESTC)
Market Capitalization as of September 11: $7.41 billion
Number of Hedge Fund Holders: 58
Elastic NV (NYSE:ESTC) is an American-Dutch search and analytics solutions company that builds self-managed and SaaS offerings for search, logging, security, observability, and analytics use cases. Its technology is used by organizations in various industries, including IT, security, and e-commerce, to gain insights from their data through searching, analyzing, and visualizing data at scale.
Recently, the company changed how it organizes the sales team to focus more on larger customers, which caused delays in closing deals, especially in the Americas. Customer budget constraints also slowed down deals in EMEA. However, no deals were lost and most of them are expected to close soon.
Despite these challenges, the company had a strong first quarter of fiscal 2025, with revenue growth of 18% and cloud revenue growth of 30% year-over-year. The total revenue generated in the period was $347.42 million, with $0.35 in earnings per share. It has over 1,370 customers spending ~$100,000. Elastic NV (NYSE:ESTC) is also focusing on GenAI opportunities, which is helping the Search business grow.
Over 1,300 customers are using Elastic Cloud for GenAI, and more than 200 of these are larger customers. It recently launched a new incentive program called Elastic Express Migration to help companies move to the Elasticsearch AI platform quickly and efficiently. This program includes all the necessary migration services and helps companies avoid the costs of using multiple vendors.
58 hedge funds are long in Elastic NV (NYSE:ESTC) with a total of 1,690,700 shares. The highest stake is at $192,587,637 by Tiger Global Management LLC. The company’s recent deals and partnerships demonstrate its ability to meet the evolving needs of its customers and capitalize on the growing demand for AI-driven solutions.
Artisan Global Discovery Fund stated the following regarding Elastic N.V. (NYSE:ESTC) in its Q2 2024 investor letter:
“During the quarter, we initiated new GardenSM positions in Liberty Formula One, Elastic N.V. (NYSE:ESTC) and Onto Innovation. Elastic is a software company that specializes in search and data analysis solutions. Elastic’s search, observability and security solutions are built on the Elastic Search AI Platform, which thousands of companies use, including more than 50% of the Fortune 500. Customers use the software to gain visibility into their data, reduce mean-time-to-resolution and drive actionable outcomes. We believe the company will benefit from the rise of generative artificial intelligence (AI). It provides a differentiated offering due to the combination of a unique pricing model based on consumption, products that handle numerous data types and volumes, and an open architecture environment that offers generative AI development flexibility.”
While we acknowledge the growth potential of Elastic NV (NYSE:ESTC), 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 NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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