Mid-cap technology stocks have shown significant resilience and growth over the past three years, bouncing back from the bear market of 2022. The S&P MidCap 400 Information Technology sector reported approximately 22% annualized gains in price returns, signaling a recovery as market conditions stabilized and earnings improved. Meanwhile, the SPDR S&P Software & Services ETF (XSW) delivered a 19.8% annualized total return for the same period, highlighting the contrasting performance between diversified software companies and specialized cloud service providers, which lagged at around 9%.
The divergence in performance among mid-cap tech stocks can largely be attributed to two key factors. First, the prolonged period of higher interest rates has shifted investor focus from growth at all costs to a more disciplined approach that emphasizes profitability. Stocks with strong gross margins and visible cash flow have maintained their valuations, while those lacking financial robustness faced declines.
Second, the growing integration of artificial intelligence (AI) into business operations has favored companies that embed AI features into their products, particularly in areas like security and data management. Budget allocations have increasingly focused on AI-driven solutions that enhance efficiency and reduce costs, rather than speculative investments. As Deloitte notes, the industry outlook for 2025 anticipates increased IT spending linked to AI integration.
Top Performers in Mid-Cap Tech
A closer look at the best-performing mid-cap tech stocks reveals a range of companies that have successfully navigated this complex landscape. The following are the top ten mid-cap tech stocks based on their three-year compound annual growth rate (CAGR):
10. Formula Systems (1985) Ltd. (NASDAQ:FORTY)
Market Cap: $2.20 billion
3Y CAGR: 22.18%
Formula Systems has performed well, driven by consistent earnings growth and strategic realignment. The company recently announced the acquisition of its insurance-software subsidiary, Sapiens International Corporation N.V., by Advent International in a landmark cash deal, underscoring private equity interest in established, cash-flowing assets.
9. Parsons Corporation (NYSE:PSN)
Market Cap: $9.37 billion
3Y CAGR: 28.33%
Parsons has expanded its capabilities through the acquisition of Applied Sciences Consulting, Inc., enhancing its engineering services in water management. This strategic move aligns with the company’s emphasis on resilience and infrastructure, particularly in areas expected to attract significant federal investment.
8. Varonis Systems, Inc. (NASDAQ:VRNS)
Market Cap: $6.72 billion
3Y CAGR: 28.95%
Varonis has capitalized on the growing demand for enterprise data security, bolstered by its acquisitions and partnerships in AI. Recent upgrades from analysts reflect positive market sentiment and sustained demand for its innovative cloud-native platform.
7. Aurora Innovation, Inc. (NASDAQ:AUR)
Market Cap: $9.96 billion
3Y CAGR: 30.3%
Aurora, focusing on autonomous driving systems, has received multiple “Buy” ratings from analysts, reflecting optimism about its technology’s potential in the long-haul trucking sector.
6. Zeta Global Holdings Corp. (NYSE:ZETA)
Market Cap: $4.75 billion
3Y CAGR: 39.51%
Zeta’s AI-driven marketing cloud has gained traction, and its recent acquisition of Marigold is expected to significantly enhance revenue and operational capabilities.
5. Kyndryl Holdings, Inc. (NYSE:KD)
Market Cap: $6.91 billion
3Y CAGR: 49.97%
Kyndryl is pivoting towards AI-driven solutions, recently launching an Agentic AI-powered Aviation Industry Cloud Solution in partnership with Google Cloud. This initiative aims to modernize operations within the airline sector.
4. AvePoint, Inc. (NASDAQ:AVPT)
Market Cap: $3.20 billion
3Y CAGR: 58.03%
AvePoint’s growth trajectory is marked by robust SaaS revenue growth, driven by its cloud data protection solutions. Recent analyst upgrades highlight confidence in its business model and market position.
3. BigBear.ai Holdings, Inc. (NYSE:BBAI)
Market Cap: $2.76 billion
3Y CAGR: 70.90%
BigBear.ai has established itself in AI-driven defense analytics, partnering with SMX to enhance operational capabilities for the U.S. Navy. This collaboration underscores its role in providing real-time insights through advanced data integration.
2. Applied Digital Corporation (NASDAQ:APLD)
Market Cap: $7.48 billion
3Y CAGR: 156.32%
Applied Digital is set to expand its operations significantly with the development of its Polaris Forge 2 AI campus in North Dakota, positioning itself as a leader in digital infrastructure for high-performance computing.
1. Innodata Inc. (NASDAQ:INOD)
Market Cap: $2.79 billion
3Y CAGR: 197.7%
Innodata has garnered attention for its strong performance and recognition in the AI sector. Analysts are optimistic about its growth potential, bolstered by its strategic focus on enterprise data engineering.
In summary, mid-cap tech stocks have rebounded impressively, with a distinct focus on profitability and AI-driven innovation shaping performance. The market appears poised to continue rewarding companies that demonstrate sustainable growth and effective cost management strategies.
