U.S. stock markets have seen a fairly good rally so far this year after a pathetic 2022. Year to date, the broad-market S&P 500 Index is up 9.5%. Although the blue-chip Dow is down marginally by 0.3%, the tech-heavy Nasdaq Composite has witnessed an impressive bull run of 24.4%.
The technology sector has regained its mojo in 2023 after a disappointing 2022. Year to date, of the 11 broad sectors of the S&P 500 Index, the Technology sector has become the biggest gainer surging 33.1%. The second biggest gainer is the Communication Services sector (advancing 29.7%), which is closely linked with the Technology sector.
Growth-oriented sectors like technology, communication services and consumer discretionary are highly susceptible to interest rate movements. A high interest rate is detrimental to growth stocks. This is evident in the recent pandemic-induced turmoil.
During the pandemic-ridden 2020 and 2021, the Fed kept the benchmark interest rate as low as 0-0.25%. Consequently, the tech sector witnessed an unprecedented rally that enabled Wall Street to exit a coronavirus-induced short bear market and form a new bull market.
However, as the Fed hiked interest rate by 4.5% in 2022 to combat the 40-year high inflation, the growth sectors, especially technology stocks suffered the most. The situation once again turned in favor of technology stocks as Fed Chairman Jerome Powell indicated that the ongoing rate hike cycle is perhaps reaching its end, although it will depend on the outcome of economic data.
Several technology behemoths have popped so far this year. Aside from these tech giants, various small-cap (market capital < $1 billion) tech stocks have also skyrocketed in 2023. A handful of these stocks with a favorable Zacks Rank indicates more upside left in the near-term. Investment in these stocks will be fruitful to tap the ongoing rally.
Our Top Picks
We have narrowed our search to five small-cap technology stocks that have popped more than 50% year to date. These stocks have strong potential for the rest of 2023. They have also seen positive earnings estimate revisions in the last 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
. the complete list of today’s Zacks #1 Rank stocks here
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research inTEST Corp. ( INTT Quick Quote INTT - Free Report) is an independent designer, manufacturer, and marketer of ATE interface solutions and temperature management products, which are used by semiconductor manufacturers to perform the final testing of integrated circuits and wafers. INTT’s high-performance products are designed to enable semiconductor manufacturers to improve the speed, reliability, efficiency and profitability of IC test processes.
Specific products of inTEST include positioner and docking hardware products, temperature management systems and customized interface solutions. INTT has established strong relationships with semiconductor manufacturers globally, which it supports through a network of local offices.
Zacks Rank #1 inTEST has an expected revenue and earnings growth rate of 10.4% and 15.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 26.7% over the last 30 days. The stock price of INTT has climbed 112.8% year to date.
Evolv Technologies Holdings Inc. ( EVLV Quick Quote EVLV - Free Report) provides AI-based weapons detection for security screening. EVLV has two main products. Evolv Express, a touchless security screening system designed to detect firearms, improvised explosive devices, and tactical knives.
Evolv Insights provides self-serve access, insights regarding visitor flow and arrival curves, location-specific performance, system detection performance, and alarm statistics.
Zacks Rank #2 Evolv Technologies has an expected revenue and earnings growth rate of 17.1% and 18%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the last 30 days. The stock price of EVLV has jumped 116.2% year to date.
Weave Communications Inc. ( WEAV Quick Quote WEAV - Free Report) provides a customer communications and engagement software platform in the United States and Canada. WEAV’s platform enables small and medium-sized businesses to maximize the value of their customer interactions and minimize the time and effort spent on manual or mundane tasks.
WEAV’s products include Customized Phone System, Weave Text Messaging, Weave Missed Call Text, Weave Team, and Weave Mobile App. WEAV also offers Weave Reviews, Weave Email Marketing, Text Connect, Weave Payments and Customer Insights.
Zacks Rank #2 Weave Communications has an expected revenue and earnings growth rate of 14.1% and 47.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the last 30 days. The stock price of WEAV has surged 63.4% year to date.
Turtle Beach Corp. ( HEAR Quick Quote HEAR - Free Report) is an audio technology company. HEAR designs audio products for consumer, commercial and healthcare markets. HEAR markets premium headsets for use with personal computers, mobile devices, and video game consoles under the brand Turtle Beach.
Under the brand HyperSound, HEAR markets pioneering directed audio solutions that have applications in digital signage and kiosks, consumer electronics and healthcare.
Zacks Rank #2 Turtle Beach has an expected revenue and earnings growth rate of 13.9% and 79.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the last 30 days. The stock price of HEAR has appreciated 59.7% year to date.
Arlo Technologies Inc. ( ARLO Quick Quote ARLO - Free Report) offers product design, wireless connectivity, cloud infrastructure and cutting-edge AI capabilities focuses on delivering a seamless, smart home experience.
ARLO’s cloud-based platform provides users visibility, insight and a powerful means to help protect and connect in real-time. ARLO’s connected devices, including wire-free smart Wi-Fi and LTE-enabled cameras, advanced baby monitors and smart security lights.
Zacks Rank #2 Arlo Technologies has an expected revenue and earnings growth rate of 6.4% and 35.4%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 1% over the last 30 days. The stock price of ARLO has soared 166.4% year to date.