Investors hunt for AI winners in small-cap US tech stocks

• Small-cap semiconductor companies like MaxLinear and VIAVI have posted triple-digit gains in 2025, with small-cap chipmakers expected to show nearly 40% profit growth in Q2, compared to just 7% earnings growth for the broader small-cap tech sector.
• The performance gap between small-cap and large-cap tech stocks is at its widest since before 1995, driven by investor interest in companies positioned to benefit from AI infrastructure buildout including chipmakers, data center suppliers, and network equipment makers.
• Despite strong stock price performance, profitability remains inconsistent for many small-cap tech winners, with companies like MaxLinear and VIAVI alternating between quarterly profits and losses, raising concerns about speculative versus fundamental drivers.

Summary: Investors Hunt for AI Winners in Small-Cap US Tech Stocks

U.S. small-cap technology stocks are experiencing a dramatic surge as investors expand their AI investments beyond megacap firms like Nvidia and Intel. The S&P 600 small-cap tech index has gained nearly 54% year-to-date, vastly outperforming the S&P 500 technology index's 20.1% rise—the widest performance gap since before 1995.

Key Investment Flows:

The Invesco S&P SmallCap Information Tech ETF has attracted $49.7 million in inflows this year, reversing four consecutive years of outflows, according to LSEG Lipper data.

Top Performers:

Companies posting triple-digit gains include network test equipment maker VIAVI Solutions, semiconductor firm MaxLinear (which reported 43% revenue growth), Ultra Clean Technology (UCTT), and Vishay Intertechnology. Ichor Holdings has surged approximately 400% despite last reporting quarterly profit in December 2022.

Sector Focus:

Smaller tech companies offering AI exposure span chipmakers, data center suppliers, and network equipment manufacturers. Small-cap semiconductor firms are expected to post nearly 40% profit growth in Q2, though broader small-cap tech earnings growth is projected at just 7% (excluding bitcoin miner MARA Holdings).

Analyst Concerns:

Some experts warn the rally is driven more by speculation than fundamentals. Hal Reynolds of Los Angeles Capital Management noted small-cap tech valuations reflect "speculation and less on changes in fundamentals relative to large-cap stocks." The strong rallies have sparked discussions about a potential AI bubble, particularly as many high-performing stocks show inconsistent profitability, with companies like MaxLinear and VIAVI historically alternating between profits and losses.

The surge represents a "second and third order" expansion of the AI trade into smaller market segments.