These smaller tech stocks are punching well above their weight

By Britney Nguyen

Shares of small-cap tech stocks have outperformed their large-cap peers by an extreme magnitude

Cohu is among the standout gainers in small-cap tech.

Small-cap technology companies have trounced larger tech companies to an eye-popping degree in the past year, highlighting two major market trends.

One is simply the depressed performance of major software stocks. Shares of large-cap software companies Salesforce (CRM), Intuit (INTU) and Adobe (ADBE) are all off more than 30% over a 12-month span, while shares of Workday (WDAY) and ServiceNow (NOW) have each lost more than 50%.

Those stocks have been under pressure from fears that artificial intelligence could hurt demand for traditional software. And given that these software companies have sizable market capitalizations, their sharp share-price declines have eaten into the growth momentum of the S&P 500’s SPX information-technology sector recently.

As such, the S&P SmallCap 600’s SML information-technology sector XX:SP600.45 has outperformed the S&P 500’s tech sector XX:SP500.45 by 38 percentage points in the past year, according to Dow Jones Market Data. Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research, pointed out the sizable gap on X earlier this week, back when the spread was more than 40 percentage points.

That’s despite massive gains for large-cap memory and storage stocks including Sandisk (SNDK), Western Digital (WDC) and Micron Technology (MU). They’ve soared in the past year on booming AI demand and are among the biggest large-cap IT gainers in the past year. Networking players such as Lumentum Holdings (LITE) and Ciena (CIEN) have also benefited from the AI buildout and staged strong stock gains.

Sandisk’s stock is up more than 4,000% in a year, for instance, while Lumentum’s is up more than 1,200%.

See more: Micron is now worth more than JPMorgan as the stock sees its best week in two decades

But there have been standout gainers in the small-cap tech universe as well, with investors seeking out under-the-radar beneficiaries.

MaxLinear (MXL), a fabless chip company that designs analog and other non-AI chips used in data centers, has been the best performer in the small-cap IT group – rising nearly 800% in a year, according to Dow Jones Market Data.

Much of that momentum reflects enthusiasm around the company’s recent pivot toward optical connectivity, which is in high demand in AI data centers where high-speed data transmission is crucial.

Read on: Optics is the next big AI bottleneck. This company could be an underrated beneficiary.

Late last month, the company’s first-quarter results and guidance came in ahead of Wall Street’s expectations, leading Needham analyst N. Quinn Bolton to say the company “has reached an inflection point.”

Additionally, Bolton said he expects MaxLinear’s “cash flow to turn meaningfully positive,” which should help offset any risk that comes up from an ongoing legal dispute over its termination of an agreement to acquire Silicon Motion (SIMO).

Shares of Ichor Holdings (ICHR), which supplies gas and chemical delivery systems used in semiconductor capital equipment, have gained 347% in the past year, according to Dow Jones Market Data.

Earlier this week, the company delivered a beat-and-raise performance for the first quarter, and its $300 million guidance for the second quarter represents “one of the steepest ramps in company history,” Needham analyst Charles Shi said in a Tuesday note.

As chip makers look to add manufacturing capacity to meet steep demand, deposition and etch technology are driving Ichor’s growth, Shi said. Lithography equipment should emerge as another driver for Ichor in the fourth quarter, Shi added.

The AI boom has also benefitted Cohu (COHU), which provides chip testing and inspection equipment. The company’s shares have gained 209% in the past year, according to Dow Jones Market Data.

Cohu reported a strong March quarter last week that Jefferies analyst Kevin Garrigan said reflected its strengthening opportunity in AI and high-performance computing. He pointed to its $750 million revenue pipeline across 12 customers.

Cohu stands to benefit further as demand grows beyond graphics processing units to custom chips and central processing units, Garrigan said in an early May note.

The momentum could continue into the next calendar year “as inference workloads scale and power density rises across the data center, driving demand for back-end test infrastructure,” Garrigan said.

Don’t miss: As Nvidia earnings draw closer, here are 5 things investors need to watch

Ultra Clean Holdings (UCTT), which develops and provides systems and components for chip-manufacturing equipment, has seen its shares rise 332% in the past year, according to Dow Jones Market Data.

The company’s first-quarter report in April exceeded Wall Street’s expectations and sent the message that there will be further investments into wafer-fab equipment by memory and leading-edge chip makers.

Needham’s Shi said in a late April note that he believes Ultra Clean “has ample capacity to supply [$3 billion] of revenue per year,” or even up to $4 billion, as chips get more complex, driving the need for higher process systems and equipment.

-Britney Nguyen

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05-09-26 0800ET

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