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Best Small-Cap Tech Stocks to Buy | The Motley Fool

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  Published in Stocks and Investing on Friday, September 5th 2025 at 20:06 GMT by The Motley Fool
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Small‑Cap Tech Stocks: A 2024 Guide to the Next‑Generation Growth Leaders

The Motley Fool’s “Small‑Cap Tech Stocks” page is a concise, data‑driven primer on the high‑growth, high‑volatility segment of the technology sector that has attracted a growing share of institutional and retail investors. The article frames the small‑cap universe as the “sweet spot” for investors willing to accept a higher risk premium in exchange for the possibility of outsized returns. Below is a thorough summary of the piece, distilled into its core arguments, recommended holdings, and caveats—plus some context from the linked company pages that help flesh out why each name is on the Fool’s radar.

1. Why Small‑Cap Tech Is Worth Watching

The article begins by contrasting the current market environment against the “old guard” of mega‑cap tech (think Apple, Microsoft, Alphabet). Two key trends drive the shift toward smaller names:

The article notes that while small caps are inherently more volatile—market cap under $10 B, thinner trading volume, and a greater propensity for “momentum” swings—many of the best‑performing companies in recent years have been in this space. The Fool’s thesis is that disciplined research can help filter out the noise and identify those firms that combine strong fundamentals with credible growth catalysts.

2. The Fool’s “Must‑Watch” Small‑Cap Tech List

The bulk of the page is a table of eight to ten recommended stocks. Each entry lists the company’s ticker, market cap, recent year‑to‑date performance, forward‑growth estimate, and a short commentary on why the Fool thinks it’s a good buy. Below are the highlighted names, with a quick recap of the key points made for each:

(All numbers are rounded to the nearest percent; the Fool’s page provides the exact values.)

The article stresses that the list is not a “one‑size‑fits‑all” recommendation but a starting point for deeper due diligence. It advises readers to evaluate each company’s free‑cash‑flow (FCF) trend, price‑to‑sales (P/S) ratio, and gross‑margin profile. For instance, the Fool highlights that while CLOU has a very attractive P/S of 9.5x, its FCF margin is still in the teens—a red flag for a potential valuation correction.

3. Risk Factors and Mitigating Strategies

Small‑cap tech comes with several inherent risks that the Fool discusses in a dedicated sidebar:

1. Liquidity & Bid‑Ask Spreads – Smaller trading volumes can widen spreads, eroding returns on frequent trades.
2. Revenue Concentration – Many of the firms rely on a handful of large clients; losing one can hurt the bottom line.
3. Regulatory & Data Privacy – Identity‑management and cloud‑security companies face tightening data‑protection rules in the EU and US.
4. Valuation Adjustments – If macro‑economic conditions worsen, even high‑growth names may see a discount to earnings.

The article proposes a “divide and conquer” approach: hold a diversified basket of at least 5–8 names and avoid concentrating more than 5 % of your portfolio in any single ticker. It also recommends monitoring earnings guidance each quarter for signs of “price‑to‑earnings” creep.

4. Where the Fool Sees Future Growth

The piece identifies three macro‑themes that could act as catalysts for the next wave of small‑cap tech upside:

The Fool points out that some of the “hidden gems” on the list—ALTY and CLOU—have shown robust free‑cash‑flow growth of 18‑24% year over year, suggesting they’re not just riding a hype wave but building real, scalable businesses.

5. Bottom Line & Take‑away

If you’re comfortable with higher volatility and you’re looking to diversify beyond the mega‑cap tech stalwarts, the Fool’s small‑cap tech lineup offers a blend of high‑growth names that have demonstrated solid fundamentals and compelling catalysts. Their recommended allocation is a 10‑15% tilt to small‑cap tech within a broader portfolio, acknowledging that these holdings can deliver “upside potential” but also come with a “risk premium” that requires careful monitoring.

The article ends with a friendly reminder: “Always do your own research.” The Fool’s page contains links to each company’s investor‑relations website, recent earnings releases, and key metrics like cash‑on‑balance‑sheet and churn rates. Those links provide the granular detail needed to decide whether a particular small‑cap tech stock aligns with your investment philosophy.

Word Count: ~720 words

(This summary synthesizes the information from The Motley Fool’s “Small‑Cap Tech Stocks” page (accessed on 2025‑09‑05) and the linked company profiles that expand on the company‑specific details mentioned above.)