Market Analysis

Tech's Next Big Growth Wave: Small Stocks Set for a Comeback

Amos Simanungkalit · 21 Mar40K Views

Image Credit: Reuters

There are plenty of growth opportunities in the tech sector beyond the widely discussed "Magnificent 7.

With the Mag 7 currently underperforming, it might be a good time to explore smaller-cap tech companies that are often overlooked. According to Eric Jackson, founder of EMJ Capital and a tech investor with over 20 years of experience, investors have become too focused on the Mag 7 in recent years. While these companies are strong and profitable, Jackson suggests they may no longer deserve as large a portion of investment portfolios as they did when they were soaring in 2023 and 2024.

Jackson believes that tech will continue to be a growth-focused sector, but smaller, growth-oriented tech companies could see a resurgence in the coming years. Among the companies Jackson is optimistic about are digital insurance provider Root (ROOT), with a market cap of $2.3 billion, and quantum computing firms IonQ (IONQ) and D-Wave Quantum (QBTS), with market caps of $5.6 billion and $2.9 billion, respectively. Root has surged 117% this year, while D-Wave has gained 18%, although IonQ has fallen by 43%.

As the Mag 7 continues to struggle with growth and valuation concerns, diversifying into the broader tech space could be a smart move. Stocks of companies like Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Amazon (AMZN), Google (GOOG), and Tesla (TSLA) have all underperformed this year, with Tesla down a dramatic 43%. Meta (META), however, has shown relative resilience, partly due to its positive relationship with the Trump administration.

LPL Financial's chief technical strategist, Adam Turnquist, points out that many of these large tech companies are shifting from asset-light to asset-heavy models, which could complicate their earnings growth. Additionally, the emergence of China's privately owned DeepSeek platform raises questions about the long-term dominance of the "American exceptionalism" narrative that has fueled the success of the Mag 7.