Small caps have been left behind in a way we haven’t seen since the dot-com unwind. While the S&P 500 trades at a stretched forward P/E of nearly 22, the S&P 600 sits at just 14.8 times forward earnings. That 7-point gap is one of the widest valuation spreads in more than two decades, and historically gaps like this have set the stage for multi-year outperformance from smaller companies.
At the same time, analysts expect small-cap earnings to finally reaccelerate. Current forecasts point to roughly 20 percent earnings growth in 2026, supported by lower interest rates, improving domestic conditions, and the fact that many small companies rely on floating-rate financing that benefits quickly from rate cuts. With this backdrop, we are highlighting three small-cap ideas across different risk profiles.
SmartRent (SMRT)
SmartRent develops smart home automation for multifamily housing, single-family rentals, and student living. Its technology has become an important operational tool for property owners, and that shows up clearly in the numbers. Annual recurring revenue has grown about 23 percent on average over the past two years, and EPS has compounded at roughly 24 percent annually over the past three. Years of investment in devices, software, and infrastructure are now producing rising returns on capital. At around 1.64 dollars per share, the stock is not cheap on traditional valuation metrics, but the consistency of subscription growth keeps SmartRent on our radar as a small-cap tech name with improving fundamentals.
Hive Digital Technologies (HIVE)
Hive is one of the most adaptable small caps in the market. The company has transitioned from gold mining, to crypto mining, and now to operating high-power data centers capable of supporting AI workloads alongside Bitcoin and Ether. With operations in Canada, Sweden, and Paraguay, Hive is positioned to benefit from growing demand for compute-intensive infrastructure without needing to build entirely new facilities. Shares are up more than 150 percent over the past six months, which suggests investors are rewarding the company’s ability to pivot quickly toward higher-value opportunities.
iShares Core S&P Small-Cap ETF (IJR)
Small caps can offer significant upside, but they also come with higher volatility and business-specific risk. For investors who want exposure to this part of the market without taking on the swings that come with individual names, IJR is a straightforward solution. It tracks the S&P 600, focuses on quality small caps, keeps expenses extremely low at 0.06 percent, and has a long record of tracking the index reliably. As small-cap valuations sit far below large caps and below their own historical averages, IJR provides a way to participate in a potential multi-year rebound while spreading risk across a diversified basket.
