In this article, we will take a detailed look at the 11 Best Technology Penny Stocks To Invest In Now. For a quick overview of the 5 such stocks, read our article5 Best Technology Penny Stocks To Invest In Now.
Yet another stronger-than-expected jobs report published on Friday is further dampening investors’ hopes of seeing the first rate cut from the Federal Reserve in June. Analysts have started to predict that the Federal Reserve might further delay its first rate cut to avoid seeing a strong rebound in inflation down the road. Piper Sandler said in its fresh note that latest data is showing the US labor market is “even stronger than we thought and maybe getting stronger.” Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan, also said in a note that investors are beginning to digest the possibility of not seeing three rate cuts this year. He thinks the Fed could cut rates twice this year, but it’s still early to say anything.
Possibility of No Rate Cuts in 2024?
Moving expectations from three rate cuts to two won’t be a big deal for the market, given the resilience of the labor market, strong household savings and the AI revolution that keeps pushing stocks higher. But what if the Fed kills the possibility of any rate cuts this year because of sticky inflation and strong hiring? A few months ago this would have sounded like an impossible thing to say. Today, it’s totally a possibility.
"If the economy is running the way it's running now through most of this year, then it might be likely that the Fed does not cut interest rates this year,” Saglimbene added.
Can Smaller Companies Benefit from the AI Rally? Taking Guidance from History
Despite this backdrop, more and more market experts have been saying that the AI-led rally that boosted large-cap tech stocks like Apple Inc. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN), Alphabet Inc. (NASDAQ:GOOG), and many others, is starting to broaden out to smaller companies. They say for long-term investors it’s time to pile into small-cap stocks in the technology sector. Hartford Funds in a report last month said that historically, large-cap stocks have outperformed small-cap stocks but this trend averages out and reverses after ten years. The report noted that small-cap companies have been trading at low forward P/E ratios when compared to their large-cap counterparts for years, and if we use history as our guide, a “switch to small-cap outperformance is due.”
Investing in High-Quality Small-Cap Stocks
The last thing any sane investor would want in this uncertain environment is volatility and turbulence. So why would it make sense to invest in penny stocks or small companies? After all small-cap stocks have become synonymous with volatility. Small-cap proponents say that not all small-cap stocks are equal. For long-term investors who want to make money investing, opportunities lie in the small-cap universe. A GMO report published in 2022 talked about the importance of investing high quality small-cap stocks. What are high quality small-cap stocks? According to GMO, which said it has been investing small-cap quality stocks since 2004 as part of its “Quality Strategy”, high quality companies have “high margins, high returns on capital, low debt, and stable fundamentals.” This is what the firm found out about high quality small-cap companies:
“High-quality small cap companies have delivered stronger returns than the small cap universe, with lower volatility. Since 1976, small cap quality has outperformed the small cap asset class in the U.S. by 1.8% annualized and has also outperformed the all-cap U.S. market by 2.8% annualized. These more predictable, long-term winners are very often undervalued by the market, buried under the buzz of stocks long on narrative but short on fundamental stability.”
Performance of Small Companies So Far in 2024
But how have small-cap and micro-cap stocks been performing this year? Invesco S&P SmallCap Information Technology ETF (PSCT), which invests in small-cap technology stocks, is up just 5.80% over the past one year, compared to the S&P 500’s return of 27%. So far this year, the ETF is down 3.56%. But artificial intelligence is doing its wonders in the small-cap space too, since smaller names like Super Micro and MicroStrategy, part of the small-cap focused Russell 2000, poste huge returns on the back of the AI wave. A recent Wall Street Journal report said, citing data from LSEG, that these two companies collectively accounted for about a third of the Russell 2000’s 5.2% return in the first quarter.
Methodology
In this backdrop, it would be interesting to see which smaller tech companies hedge funds are investing in. In this article we first scanned Insider Monkey's database of 933 hedge funds and their holdings and picked 11 penny technology stocks (trading under $5) with the highest number of hedge fund investors. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
Mobile advertising and app growth solutions company Digital Turbine Inc (NASDAQ:APPS) ranks 11th in our list of the best technology penny stocks to invest in now according to hedge funds.
As of the end of the fourth quarter of 2023, 19 hedge funds had stakes in Digital Turbine Inc (NASDAQ:APPS). The biggest stakeholder of Digital Turbine Inc (NASDAQ:APPS) during this period was D. E. Shaw which owns a $13 million stake in Digital Turbine Inc (NASDAQ:APPS).
Virginia-based IT and cybersecurity company Telos Corp (NASDAQ:TLS) ranks 10th in our list of the best technology penny stocks hedge funds are piling into. Earlier this month Telos Corp (NASDAQ:TLS) posted fourth quarter results. Adjusted EPS in the period came in at -$0.09, beating estimates by $0.02. Revenue in the quarter jumped 13.3% year over year to $41.06 million, surpassing estimates by $8.95 million.
Out of the 933 hedge funds in Insider Monkey’s database, 20 hedge funds had stakes in Telos Corp (NASDAQ:TLS) as of the end of the last quarter of 2023. Unlike Apple Inc. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOG), TLS is a small company that does not get much attention from the market.
Action camera company GoPro Inc. (NASDAQ:GPRO) is one of the penny stocks hedge funds are buying.
Insider Monkey’s proprietary database of 933 hedge funds shows that 20 funds had stakes in GoPro Inc. (NASDAQ:GPRO) as of the end of the last year. The biggest stake in GoPro Inc. (NASDAQ:GPRO) belongs to DE Shaw which owns a $12.5 million stake in GoPro Inc. (NASDAQ:GPRO).
Earlier this year GoPro Inc. (NASDAQ:GPRO) said it plans to cut 4% of its total workforce to cut costs.
California-based clean energy storage solutions company Stem Inc (NYSE:STEM) ranks eighth in our list of the best technology penny stocks to invest in according to smart money investors.
Out of the 21 hedge funds that had stakes in Stem Inc (NYSE:STEM) as of the end of the last quarter of 2023, Panayotis Takis Sparaggis’s Alkeon Capital Management had the biggest stake in Stem Inc (NYSE:STEM) with a $28 million stake.
However, earlier this month, Goldman Sachs downgraded the stock to Neutral from Buy and also cut its price target to $2.50 from $5.50.
In addition to small companies, hedge funds are also buying Apple Inc. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOG).
Voice over IP products and solutions company 8X8 Inc. (NASDAQ:EGHT) ranks seventh in our list of the best technology penny stocks to invest in according to hedge funds. In February, Bank of America published a list of buy-rated small cap value stocks. BofA said these stocks have strong profit growth and perform well when rate hikes are stopped. 8X8 Inc. (NASDAQ:EGHT) made it to this list.
As of the end of the last quarter of 2023, 21 hedge funds tracked by Insider Monkey had stakes in 8X8 Inc. (NASDAQ:EGHT).
Missouri-based personalized learning platform company Nerdy Inc (NYSE:NRDY) is one of the best technology penny stocks hedge funds are buying. Insider Monkey’s database of 933 hedge funds shows that 21 hedge funds had stakes in Nerdy Inc (NYSE:NRDY) as of the end of the last quarter of 2023.
In February Nerdy Inc (NYSE:NRDY) posted Q4 results. Adjusted net earnings in the period came in at $2.2 million. Revenue in the quarter jumped about 32% year over year to $55.1 million, surpassing estimates by $0.33 million.
