Technology stocks are leading the market. Investors in Amazon (Nasdaq: AMZN), Facebook (Nasdaq: FB) and other tech giants have seen huge gains. They’ve benefited from the pandemic. Their valuations are a bit lofty, though, and when looking for value, you might want to buy small cap tech stocks instead.

Below, I’m going to show you why both small cap stocks and tech stocks can be a great investment. And combining the two can result in even higher returns. Or if you want to skip learning about the strategy, you can jump straight down to the list of stocks.

Also, if you want to see how your investments can grow, check out our investment calculator. It’s a free tool that can help you plan how much you need to save to hit your financial goals.

Looking up small cap tech stocks on computer and smartphone

Why Invest in Small Cap Tech Stocks?

Small cap stocks outperform larger stocks over the long run. One reason for this is their growth potential. They often command a smaller piece of total market share. And in some cases, they’re early to new, rapidly growing markets.

Small cap stocks also don’t get as much publicity. And with less coverage comes a higher chance of being mispriced. This can lead to finding better investing opportunities.

Tech stocks have claimed a bigger portion of the total market. The first few publicly traded U.S. companies to reach the $1 trillion mark were all tech stocks. And this trend doesn’t seem to be slowing down.

New technologies and software are disrupting every sector. Both profits and the rate of tech adoption are picking up steam. It’s a huge investing opportunity. To learn more, check out our recent articles on tech stocks.

List of Small Cap Tech Stocks

Now for the good stuff! I’ve tracked down some top small cap tech stocks for 2021 and beyond. These companies are addressing different markets and have huge growth potential. I’ll start with the list, and then after, I’ll highlight some of the reasons these stocks made the cut.

  1. Cerence (Nasdaq: CRNC)
  2. Unisys (NYSE: UIS)
  3. XBiotech (Nasdaq: XBIT)
  4. Digi International (Nasdaq: DGII)
  5. Vaxart (Nasdaq: VXRT)
  6. Allied Motion Technologies (Nasdaq: AMOT).

Tech Company Highlights

Cerence develops a wide range of car technologies. The company has innovated for more than 20 years and has more than 1,420 patents. With this war chest of intellectual property, you can find Cerence technology in 325 million cars around the world.

This company is focusing on voice and AI systems. With this innovation, it can connect drivers to not just their cars but also their entire digital universes. As cars become more connected, Cerence should be able to drive revenues higher.

Unisys is an information tech company, as well as a promising small cap tech stock. It’s based out of Pennsylvania but has global reach. And the company operates with two business segments, Services and Technology.

Through its offerings, security is a focus. Unisys even offers dedicated security software and services. As more companies are pushing into the digital world, this should present plenty of growth opportunities for Unisys.

XBiotech is finding ways to make safer, more efficient and less expensive drugs. It creates drugs that use the body’s natural immunity to diseases. Already, XBiotech has built manufacturing technology to reduce the time and cost it takes to bring novel product candidates to human therapies.

This is valuable, life-saving technology. And overall, the biotech space can be a great place to invest as the population continues to grow and age. If you’re looking for other low-cost biotech stocks, check out these five biotech penny stocks for 2021.

Small Cap Stock Risk and Diversification

Small cap stocks have high-reward potential, but with that reward comes higher risk. These companies’ share prices can take big swings to the downside in any given day, week, month or even year.

To lower the risk of a big portfolio drop, you can spread out your investments. So while one position might drop, another might climb. This can help smooth out your returns and improve your overall risk-adjusted returns.

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