We recently compiled a list of the 10 Cash-Rich Small Cap Stocks To Invest In According To Analysts. In this article, we are going to take a look at where Axcelis Technologies, Inc. (NASDAQ:ACLS) stands against the other cash-rich small cap stocks.

Small-cap stocks in the US have been under pressure, with the Russell small cap index falling 10% from its November highs as of January 2025. In contrast, the S&P index, which tracks large-cap stocks, declined by less than 3% during the same period. President Trump’s focus on domestic economic growth could make small-cap stocks more attractive. However, the prospect of higher interest rates has become a major hurdle. Rising borrowing costs tend to impact smaller companies more than larger ones. Keith Lerner, co-chief investment officer at Truist Advisory Services, described this as a “tug of war” – where strong economic growth could benefit small caps, but higher rates work against them.

Market sentiment toward small caps has weakened due to expectations of fewer interest rate cuts, especially after the Federal Reserve raised its inflation forecast for 2025. Despite this, some experts believe small businesses could benefit from Trump’s policies, particularly reduced regulations and support for domestic industries. Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, pointed out that small companies are more US-focused than multinational corporations. However, Trump’s approach to tariffs could create challenges by disrupting supply chains, which may hurt smaller businesses too.

After years of trailing behind large-cap stocks, small caps finally seem ready for a comeback, according to RBC Wealth Management. Over the past five years, major economic and global events, such as pandemic-led lockdowns, economic rebounds, government stimulus, inflation, rising interest rates, and the rapid rise of AI, have widened the gap between small and large-cap stock performance. Large-cap stocks have delivered solid returns in four of the last five years, leaving small caps struggling to keep up. Historically, factors such as mergers and acquisitions and initial public offerings have played a key role in small-cap growth, but IPO activity in the small-cap space has been weak.

Although 2024 saw some improvement, with an average of 31 IPOs per quarter and $7 billion in total value, these numbers are still below pre-pandemic levels. That said, signs of a recovery started to emerge toward the end of 2024. Looking ahead, 2025 may be a turning point for small caps, as per RBC’s report. The Federal Reserve’s move toward lower interest rates could encourage businesses to take more risks, boosting M&A and IPO activity. As conditions improve, small caps could start closing the gap with large caps. Lower rates, increased corporate expansion, stronger market activity, and a more supportive regulatory environment could fuel small-cap growth. In addition, with large caps becoming expensive and investor expectations rising, more investors may look toward undervalued small-cap stocks for better opportunities.

Our Methodology 

For this article, we used the Finviz stock screener to find small-cap stocks with strong cash reserves. We filtered for companies with market caps between $300 million and $2 billion and a current ratio (CR) above 2, which indicates they have more assets than liabilities, due to high cash reserves, receivables, or inventory. After that, we manually looked for companies with a trailing twelve-month (TTM) operating cash flow of over $50 million as of December 31, 2024. From there, we picked 10 stocks with the highest cash reserves. These stocks also had an average upside potential of more than 20% based on Wall Street analyst estimates as of March 4. We included hedge fund sentiment as of Q4 2024 as well. Below, we have ranked the list in ascending order of upside potential.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

A close-up of an engineer working on precision semiconductor chip fabrication.

Axcelis Technologies, Inc. (NASDAQ:ACLS)

TTM Operating Cash Flow as of December 31, 2024: $140,818,000

Number of Hedge Fund Holders: 27

Average Upside Potential: 44.47%

Axcelis Technologies, Inc. (NASDAQ:ACLS) is involved in designing, manufacturing, and servicing ion implantation and processing equipment for semiconductor chip production. It operates in the US, Europe, Japan, and the Asia-Pacific region. On February 3, the company received the ‘2024 SK hynix CSO Safety and Health Award’, recognizing its commitment to safety and compliance in semiconductor manufacturing. The award, presented in Icheon, Korea, acknowledges suppliers for regulatory compliance and risk reduction in the supply chain. ACLS is one of the best cash rich stocks to monitor.

In the fourth quarter of 2024, Axcelis Technologies, Inc. (NASDAQ:ACLS)’s revenue came in at $252 million, with earnings per diluted share of $1.54. Revenue slightly exceeded expectations, as strong demand for off-the-market CS&I sales helped counter the expected decline in system sales. This growth in the CS&I segment was a major factor behind better-than-expected margins and earnings per share. The firm generated $8 million in free cash flow for the quarter. The reduction in cash flow compared to the prior quarter was due to the timing of cash receipts related to deliveries made during the fourth quarter.

As per Insider Monkey’s fourth quarter database, 27 hedge funds were bullish on Axcelis Technologies, Inc. (NASDAQ:ACLS), compared to 29 funds in the third quarter. Royce & Associates held the biggest position in the company, with 333,426 shares worth $23.3 million.

Overall ACLS ranks 2nd on our list of the best cash-rich small cap stocks to buy. While we acknowledge the potential of ACLS as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ACLS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.

 

Disclosure: None. This article is originally published at Insider Monkey.