The Russell 2000, a benchmark index for small-cap stocks, has historically lagged behind the large-cap S&P 500. Over the past decade, the S&P 500 has delivered returns of 200.8%, nearly double the 103.2% return of the Russell 2000. Even in 2024, the S&P 500 outpaced small caps, returning 27.1% compared to the Russell 2000’s 16.1%. However, a shift may already be underway. Since the U.S. presidential election on November 5, the Russell 2000 has nearly matched the S&P 500’s returns, signaling a possible resurgence in small-cap performance. Analysts at CFRA forecast that the S&P SmallCap 600 Index will generate EPS growth of 20.9% in 2025 and 18.6% in 2026, a sharp contrast to the negative 8% EPS growth seen in 2024.
The economic and political landscape also seems to favor small caps. Historically, small-cap stocks have performed best when the economy emerges from a slowdown, credit spreads tighten, and investor risk appetite improves. Donald Trump’s return to the presidency has further buoyed optimism. Trump’s policies emphasize domestic economic growth, which directly benefits small-cap companies, as nearly 80% of Russell 2000 revenue comes from domestic operations. Additionally, the National Federation of Independent Business (NFIB) Small Business Optimism Index recently jumped above its 50-year average for the first time in three years following Trump’s election victory. This surge in optimism indicates renewed confidence among small business owners, a critical driver for small-cap growth.
Expert Explains Why Small and Mid-Cap Stocks Are Undervalued Gems
In an interview with CNBC on November 4, Charlotte Daughtrey, Equity Investment Specialist at Federated Hermes, discussed the current investment landscape, particularly focusing on the small and mid-cap market. She highlighted that these segments are currently trading at or below their long-term averages, offering a 25% discount compared to large caps. Typically, small and mid-cap stocks should command a 10% premium due to their higher growth potential, but the ongoing risk environment, exacerbated by the pandemic and the prolonged period of higher interest rates, has led to their devaluation and for active investors this presents a significant opportunity.
Daughtrey noted that the small and mid-cap space is particularly attractive due to its potential for mergers and acquisitions (M&A) activity. She explained that well-performing, niche-focused companies in this segment are often attractive targets for larger corporations seeking to acquire growth rather than investing heavily in research and development. This dynamic is particularly evident in the U.S., known for its innovative companies, and is a key reason why Federated Hermes is overweight in information technology. This sector not only offers growth but also benefits from the AI tailwind without being as crowded as some larger-cap technology stocks.
Daughtrey emphasized that small and mid-cap stocks are likely to perform well compared to large-cap companies if there is a strong economy in the United States because small and mid-cap companies are more domestically focused, with 70-80% of their revenues generated domestically compared to 50-50 for large caps.
The current economic and political landscape presents a compelling case for investing in small and mid-cap technology stocks. With that in context, let’s take a look at the 12 best technology penny stocks to buy according to hedge funds.
An entrepreneur presenting the latest technology innovation in electrical components.
Our Methodology
To compile our list of the 12 best technology penny stocks to buy according to hedge funds, we used Finviz and Yahoo stock screeners to find the 30 largest technology companies trading below the price of $5, as of December 23. Then we used Insider Monkey’s Hedge Fund database to rank 12 stocks according to the largest number of hedge fund holders, as of Q3 2024. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? 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 Technology Penny Stocks To Buy According to Hedge Funds
12. Nokia Oyj (NYSE:NOK)
Number of Hedge Fund Investors: 16
Stock Price as of December 23: $4.43
Nokia Oyj (NYSE:NOK), once a market leader in the hardware market, is a global telecommunications and networking solutions company with a presence in over 130 countries. The company offers a wide range of products and services, including network infrastructure, software, and services for communication service providers (CSPs), as well as technology licensing and IoT solutions.
Nokia Oyj (NYSE:NOK) is actively diversifying its business to tap into high-growth non-CSP markets, such as data centers, defense, and private wireless. The company has secured key references with companies such as Apple and Microsoft and recently signed a deal with CoreWeave, a leading GPU-as-a-service company. The company is also investing in expanding its product portfolio to better serve these markets, including the launch of its Event-Driven Automation (EDA) platform, which automates the entire data center network lifecycle. In the Cloud and Network Services (CNS) segment, Nokia Oyj (NYSE:NOK) is leveraging its leadership in 5G Core networks for cloud-native transformation. The company has supported key deployments on public clouds, including AWS, O2 Telefonica, Comcast, and Telenet.
In Fixed Networks, Nokia Oyj (NYSE:NOK) is exploring new opportunities in fixed wireless and Optical LAN, where enterprise customers can use passive optical equipment for in-building networks. In Optical Networks, Nokia Oyj (NYSE:NOK) is positioned for future growth with its PSE-6s technology and the pending acquisition of Infinera, which will significantly increase the company’s scale in North America and exposure to webscale customers.
11. E2open Parent Holdings, Inc. (NYSE:ETWO)
Number of Hedge Fund Investors: 16
Stock Price as of December 23: $2.63
E2open Parent Holdings, Inc. (NYSE:ETWO) is a leading provider of cloud-based, end-to-end supply chain management software. The company offers solutions for planning, procurement, manufacturing, logistics, and global trade management, helping enterprises streamline complex supply chain operations. E2open Parent Holdings, Inc. (NYSE:ETWO) serves a variety of industries, including retail, consumer goods, pharmaceuticals, and manufacturing. Its major clients include global brands such as Dell, HP, and Unilever. The company generates revenue primarily through subscription fees for its software services.
E2open Parent Holdings, Inc. (NYSE:ETWO) is focusing on software development and AI-based innovations. The company recently announced a set of new products and solutions, including enhancements in areas such as connected planning, business risk management, and global trade. These innovations are designed to help clients navigate the complexities and risks of the global business environment more efficiently and effectively. The company’s focus on embedded AI and its ability to transform unstructured information into actionable insights was well-received by attendees at the recent Connect 2024 conference.
E2open Parent Holdings, Inc.’s (NYSE:ETWO) management has implemented a comprehensive growth plan that emphasizes client satisfaction, flawless solution delivery, and maximum value realization. The company’s strategic focus is on building long-term partnerships with its clients, ensuring that they receive measurable business value from the company’s solutions and innovations.
E2open Parent Holdings, Inc. (NYSE:ETWO) is also working to improve sales productivity and accelerate pipeline growth. This involves enhancing the sales team’s ability to identify, engage, and convert prospects through a more client-centric and value-focused approach. The company is also investing in training and upskilling its sales and product teams to drive higher sales.
10. Blend Labs, Inc. (NYSE:BLND)
Number of Hedge Fund Investors: 17
Stock Price as of December 23: $4.40
Blend Labs, Inc. (NYSE:BLND) is a financial technology company that offers a cloud-based platform designed to simplify and automate the mortgage lending and banking process. The platform helps financial institutions streamline workflows, reduce loan processing times, and improve customer experiences. Blend Labs, Inc. (NYSE:BLND) serves major banks, credit unions, and fintech firms, including clients such as Wells Fargo and U.S. Bank. The company primarily earns revenue from its software subscription model.
Despite the challenging macroeconomic environment, Blend Labs, Inc. (NYSE:BLND) is seeing renewed optimism and momentum in the mortgage industry. The company is investing in mortgage-related products to stay ahead of industry trends and meet the evolving needs of its customers. One key initiative is the development of the next-generation regenerative finance (ReFi) solution, known as Rapid Refi, which is designed to provide a seamless and frictionless refinancing experience. This solution is expected to drive higher conversion rates and retention for the company’s customers, ultimately leading to increased revenue and improved unit economics for the company. Additionally, Blend Labs, Inc. (NYSE:BLND) is actively expanding its customer base and pipeline, with recent wins with PenFed Credit Union to enhance its home lending operations. The company is also in negotiations with other top-tier financial institutions.
One of the most significant milestones for Blend Labs, Inc. (NYSE:BLND) in Q3 was achieving its first positive non-GAAP operating income quarter as a public company. To maintain and build upon this profitability, the company is transitioning to a simpler, software-focused model. This approach leverages the company’s core strength, which enables best-in-class experiences across a wide range of solutions. Blend Labs, Inc. (NYSE:BLND) is also streamlining operations and reducing costs to create operational leverage that will drive long-term profitability.
9. Clarivate Plc (NYSE:CLVT)
Number of Hedge Fund Investors: 18
Stock Price as of December 23: $4.98
Clarivate Plc (NYSE:CLVT) is a leading global information services company that provides insights and analytics to accelerate innovation. With a portfolio of flagship solutions, including ProQuest One, Web of Science, Derwent, CompuMark, Cortellis, Alma, and IPFolio, the company serves a diverse range of customers, including academic institutions, pharmaceutical companies, corporate entities, and law firms.
Clarivate Plc (NYSE:CLVT) is focusing on core subscription and recurring revenue streams. The company plans to convert certain product lines that have low-profit margins and weak cash flow characteristics into recurring revenue streams. This strategy aims to improve revenue predictability and profitability, making the company more resilient against market headwinds. Clarivate Plc (NYSE:CLVT) has recently converted its Life Science disease landscape & forecast data reports service from a transactional to a subscription-based revenue model and plans to extend recurring revenue models across other business segments.
Clarivate Plc (NYSE:CLVT) is leveraging AI as a key enabler of innovation, with successful implementations in academic research assistance in Web of Science and Primo, which are being extended to additional Academia & Government Consulting Services products such as ProQuest, a research and learning solution. Additionally, Clarivate Plc (NYSE:CLVT) is developing a next-generation Web of Science research intelligence platform powered by AI, which will empower researchers and research institutions to accelerate web sources and better measure the impact of their research.
8. Riskified Ltd. (NYSE:RSKD)
Number of Hedge Fund Investors: 18
Stock Price as of December 23: $4.64
Riskified Ltd. (NYSE:RSKD) is a leading provider of AI-driven fraud prevention solutions for e-commerce merchants. The company provides tools to help online retailers identify and prevent fraudulent transactions, thereby improving approval rates for legitimate orders. The platform serves major e-commerce brands across industries such as fashion, electronics, and travel. Riskified Ltd.’s (NYSE:RSKD) revenue comes from transaction-based fees and long-term contracts with enterprise clients.
To drive future growth, Riskified Ltd. (NYSE:RSKD) is focusing on several key strategic initiatives. The company is expanding its merchant base through targeted new business generation, particularly in emerging verticals such as food and remittance. In Q3, the company introduced a new Chargeback Guarantee product and added a grocery merchant client, which has a Gross Merchandise Value (GMV) of over $1 billion. This not only diversifies the company’s revenue streams but also strengthens its network effect, as each new merchant adds to the richness of the data set and enhances the predictive capabilities of its models.
Additionally, Riskified Ltd. (NYSE:RSKD) is investing in the continuous improvement of its technology and product offerings. The company recently launched the Policy Protect suite of tools, which automates the management of customer-facing policies. This tool helps merchants combat advanced fraud tactics, such as automated return and refund requests. Riskified Ltd. (NYSE:RSKD) is also maintaining a disciplined approach to financial management and capital allocation. The company has achieved positive adjusted EBITDA for the fourth quarter in a row. As of Q3, the company has a strong balance sheet and liquidity position, with $390 million in cash, deposits, and investments and no debt.
7. Conduent Incorporated (NASDAQ:CNDT)
Number of Hedge Fund Investors: 20
Stock Price as of December 23: $4.41
Conduent Incorporated (NASDAQ:CNDT) is a business process outsourcing (BPO) company offering digital platforms and services for government agencies and commercial clients. The company specializes in transaction processing, customer experience management, and healthcare claims administration. Conduent Incorporated (NASDAQ:CNDT) serves clients in sectors such as healthcare, transportation, and public services, generating revenue primarily from long-term service contracts.
Conduent Incorporated (NASDAQ:CNDT) has been actively optimizing its portfolio through strategic divestitures, which have generated approximately $780 million in after-tax proceeds. These proceeds have been deployed to strengthen the balance sheet by prepaying debt and repurchasing shares. The company remains committed to further enhancing its balance sheet and focusing its investments on its core businesses. The divestiture program is not yet complete, and the Board of Directors is fully supportive of the ongoing efforts to identify and execute additional transactions that can further enhance shareholder value.
Furthermore, Conduent Incorporated (NASDAQ:CNDT) is focused on enhancing its sales efforts, particularly in the commercial segment, where it sees a strong pipeline and growth opportunities. The company remains opportunistic about potential transactions that can further enhance value and simplify its portfolio.
6. Canaan Inc. (NASDAQ:CAN)
Number of Hedge Fund Investors: 20
Stock Price as of December 23: $2.32
Canaan Inc. (NASDAQ:CAN) is a leading provider of high-performance computing solutions, primarily known for manufacturing Bitcoin mining hardware and Application-specific integrated circuit (ASIC) microprocessors. The company’s flagship mining product line, the Avalon series, is known for its cutting-edge technology, energy efficiency, and reliability. Canaan Inc. (NASDAQ:CAN) sells mining machines to cryptocurrency miners and is involved in directly mining Bitcoin themselves.
Canaan Inc. (NASDAQ:CAN) is continuously investing in research and development to deliver high-performance products that meet the evolving needs of the market. In Q3, the company successfully transitioned to mass production of its Avalon A15 series, which offers significant improvements in computing power and energy efficiency. Canaan Inc. (NASDAQ:CAN) is making substantial progress, with ongoing negotiations and collaborations with major publicly listed mining companies that are expected to significantly boost its market share. Additionally, the company is expanding its reach into regions with energy advantages, such as Asia and Africa.
Canaan Inc. (NASDAQ:CAN) is actively enhancing its mining operations to generate additional revenue and strengthen its financial position. The company has announced a joint mining project with Luna Squares in Texas, which will add 1.61 exahash per second of computing power by the first quarter of 2025.
5. 3D Systems Corporation (NYSE:DDD)
Number of Hedge Fund Investors: 21
Stock Price as of December 23: $3.50
3D Systems Corporation (NYSE:DDD) is a pioneer in 3D printing and additive manufacturing solutions. The company designs and manufactures 3D printers, materials, and software, serving industries such as healthcare, aerospace, automotive, and consumer goods. 3D Systems Corporation (NYSE:DDD) generates revenue through hardware sales, material sales, and professional services. The company’s key clients include Boeing, General Motors, Baker Hughes, and healthcare providers.
3D Systems Corporation (NYSE:DDD) is committed to maintaining its leadership in technology and innovation. Over the past year, the company has introduced nearly 40 new materials, software enhancements, and printing platforms, which significantly expanded its portfolio and capabilities. Key launches include the PSLA 270, a high-speed photopolymer printing platform, and the Titan Extrusion Platform, which offers a hybrid solution for extrusion technology. These advancements aim to address the growing demands in high-performance markets such as semiconductor equipment manufacturing, energy, and aerospace.
3D Systems Corporation (NYSE:DDD) is focused on improving operational efficiency and financial performance. The company has been proactive in restructuring and cost management, aiming to reduce operating expenses. This includes a strong emphasis on inventory optimization and cash generation, with a target of inventory reduction by year-end.
4. Eventbrite, Inc. (NYSE:EB)
Number of Hedge Fund Investors: 23
Stock Price as of December 23: $3.33
Eventbrite, Inc. (NYSE:EB) operates a self-service ticketing platform for live events. The platform allows event organizers to plan, promote, and sell tickets online. Eventbrite, Inc. (NYSE:EB) has a presence in over 180 countries and serves clients in entertainment, education, and business events. The company earns revenue through ticket sales fees and premium event management tools.
Eventbrite, Inc. (NYSE:EB) is focusing on revitalizing its core ticketing business by attracting more creators and events to its platform. A key initiative in this effort is the introduction of an expanded free tier, which allows creators to publish unlimited events without upfront fees. This move is already showing positive results, with paid events returning to year-over-year growth in the month of launch. The company is also seeing improvements in key metrics such as creator acquisition, event volume, and ticket transactions. The company’s win-back campaign, which includes targeted email marketing, paid advertising, and in-product messaging, has been particularly successful.
Eventbrite, Inc. (NYSE:EB) is continuously enhancing its product offerings to meet the evolving needs of creators and consumers. One recent innovation is the introduction of timed entry, which gives creators greater control over managing the flow of attendees. This feature has been well-received, especially by larger and more frequent creators in categories such as music, food and drink, and seasonal events. Eventbrite, Inc. (NYSE:EB) is also redesigning its mobile app to enhance personalization, discovery, and consumer engagement. The new app, currently in live beta testing, is set to launch early next year and is expected to drive higher consumer engagement and purchase frequency. The company is also investing in marketing tools and capabilities, such as Eventbrite ads, which have been adopted by more than 10,000 creators monthly.
3. Sabre Corporation (NASDAQ:SABR)
Number of Hedge Fund Investors: 25
Stock Price as of December 23: $3.86
Sabre Corporation (NASDAQ:SABR) is a prominent technology provider for the global travel and tourism industry, specializing in backend software and data-driven solutions for airlines, hotels, and travel agencies. The company generates revenue by charging fees for each flight or hotel booking processed through its systems.
Sabre Corporation (NASDAQ:SABR) is currently developing a new multisource platform that integrates New Distribution Capability (NDC), low-cost carrier content, and traditional Electronic Data Interchange for Administration, Commerce, and Transport (EDIFACT) content. This platform incorporates intelligent algorithms and streamlined workflow integration. The platform is already in production with an early adopter program and is set to be more widely deployed in the coming quarters.
Furthermore, Sabre Corporation (NASDAQ:SABR) is prioritizing the growth of its AI-powered SabreMosaic platform. Launched in May, SabreMosaic aims to modernize travel retailing by replacing traditional Passenger Service System (PSS) solutions. The platform offers airlines a more efficient and effective approach to managing their retail operations. Virgin Australia has selected SabreMosaic to enhance its retailing capabilities, while Riyadh Air has chosen the platform to support its offer optimization technology and retailing strategies.
2. Marqeta, Inc. (NASDAQ:MQ)
Number of Hedge Fund Investors: 33
Stock Price as of December 23: $3.75
Marqeta, Inc. (NASDAQ:MQ) is a modern card-issuing platform that enables businesses to create and manage customized payment cards. The company serves fintech firms, digital banks, and e-commerce platforms, with major clients including Square, DoorDash, and Instacart. Marqeta, Inc.’s (NASDAQ:MQ) platform supports a wide range of use cases, including Buy Now Pay Later (BNPL), neobanking, on-demand delivery, expense management as well as crypto payment solutions with customized debit and credit cards.
Marqeta, Inc. (NASDAQ:MQ) is actively working to accelerate the shift to modern card issuing by simplifying the process of upgrading existing card programs onto its platform. The company recently launched a new product called Portfolio Migration, which is designed to decrease the time it takes to migrate cardholders onto the company’s platform. By reducing complexity and minimizing disruption, Marqeta, Inc. (NASDAQ:MQ) aims to attract more businesses looking to modernize their payment solutions. In Q3, the company also completed the migration of millions of Klarna cards across Sweden, Germany, and the U.K.
To further accelerate the launch of new card programs, Marqeta, Inc. (NASDAQ:MQ) has introduced the UX Toolkit. This comprehensive set of pre-built UI components is optimized for the company’s APIs and allows customers to create branded front-end experiences with fewer development resources. The toolkit is particularly valuable in the neobanking and embedded finance sectors, where customers want straightforward and engaging ways to manage their money.
Marqeta, Inc. (NASDAQ:MQ) also introduced Marqeta Flex, a new solution that integrates BNPL payment options directly into payment apps and wallets. This innovation allows consumers to access personalized BNPL options within their preferred payment apps. The company has partnered with leading BNPL providers such as Klarna, Affirm, and Branch and is expanding the distribution of BNPL services and making them more accessible to a broader audience. The company plans to roll out Marqeta Flex in mid-2025, and is actively gathering participation interest from customers and partners to scale this new service.
1. Grab Holdings Limited (NASDAQ:GRAB)
Number of Hedge Fund Investors: 39
Stock Price as of December 23: $4.90
Grab Holdings Limited (NASDAQ:GRAB) is a leading Southeast Asian super app that provides a wide range of on-demand services, including ride-hailing, food delivery, and financial services. The company operates in multiple countries, including Singapore, Malaysia, Vietnam and Indonesia. The company earns revenue through transaction fees, delivery commissions, and financial services products such as digital payments and micro-loans.
Grab Holdings Limited (NASDAQ:GRAB) is focusing on cross-selling opportunities between its various services, particularly between food and mart. The company has observed that users who transact in both food and mart have a significantly higher order frequency and retention rate. To capitalize on this, Grab Holdings Limited (NASDAQ:GRAB) has been actively promoting mart services, which have been growing 1.7x faster than food in Q3. Additionally, the company is leveraging its strong brand and data insights to attract more users to dine out at physical stores, thereby expanding its total addressable market (TAM) and generating additional revenue through advertising.
Grab Holdings Limited (NASDAQ:GRAB) is continuously investing in artificial intelligence (AI) and data science to improve the efficiency of its operations and enhance the user experience. AI-driven targeting is also being used to optimize incentive spending, ensuring that resources are directed toward the most effective areas. Additionally, the company is leveraging its data insights to develop new products and services that meet the evolving needs of its users. Grab Holdings Limited (NASDAQ:GRAB) recently announced its FlexiLoan product, which offers flexible repayment terms. By leveraging its extensive data and sophisticated lending models, the company aims to offer financial services to users who are traditionally underserved by traditional banks.
While we acknowledge the potential of Grab Holdings Limited (NASDAQ:GRAB) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GRAB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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