* MaxLinear ( MXL ), VIAVI have posted triple-digit gains this

year

* Improving earnings, cheap valuations and AI exposure

driving interest

* Some analysts warn rally is more speculative than

fundamental

By Shashwat Chauhan

May 27 (Reuters) - U.S. small-cap technology stocks are

surging after years of underperformance, a sign of how the AI

frenzy is pushing technology investors to look beyond the

Nvidias and Intels of the world.

Record U.S. equity inflows are moving beyond megacap firms

into smaller companies that have flagged strong potential to

benefit from the growing adoption of AI. The Invesco S&P

SmallCap Information Tech ETF has seen $49.7 million of

inflows so far this year after clocking outflows for four

straight years, according to LSEG Lipper data.

"The AI trade has broadened quite materially," said Oren

Shiran, portfolio manager for Lazard US Systematic Small Cap

Equity ETF. "Small-caps have become a real part of the second

and third order of AI."

Smaller technology companies can offer improving earnings

prospects, relatively cheap valuations and a broad array of

businesses related to the AI buildout, investors say, including

chipmakers, data center suppliers and network equipment makers.

The S&P 600 small-cap tech index has gained almost

54% this year, compared with a 20.1% rise in the S&P 500

technology index, putting the gap between the two at

its widest since before 1995, according to Trivariate Research.

However, strong rallies this year in technology stocks, both

big and small, have spurred talks of an AI bubble, and some

analysts have also warned that speculative trades could be

helping lift small-cap stocks to record highs.

The price of small-cap tech stocks has more to do with

"speculation and less on changes in fundamentals relative to

large-cap stocks," said Hal Reynolds, senior portfolio manager

at Los Angeles Capital Management.

Higher government bond yields worldwide could also dent the

sector's appeal, given the higher economic sensitivity of

smaller technology companies and their reliance on debt-fueled

growth.

WHAT OF EARNINGS?

Small-cap semiconductor companies have been among the

sector's top performers this year, mirroring a stunning rally in

their larger peers as massive capital spending on data centers

and AI-related infrastructure has boosted chip demand.

They are expected to post profit growth of nearly 40% in the

second quarter, according to LSEG data. However, analysts

predict earnings growth for the broader small-cap tech sector

will be just 7% in the next quarter, excluding loss estimates

for bitcoin miner MARA Holdings ( MARA ).

"Investors are speculating that some companies can benefit

from AI, either through share-gaining solutions or productivity,

driving optimism about earnings growth," said Adam Parker,

Trivariate Research's founder and chief strategist.

Some of the best-performing stocks this year include network

test and optical security products maker VIAVI and

semiconductor firm MaxLinear ( MXL ), which in its most recent

earnings report posted a 43% jump in revenue, citing demand from

hyperscale customers.

Shares of MaxLinear ( MXL ), VIAVI, Ultra Clean ( UCTT ) and Vishay

Intertechnology ( VSH ) have posted triple-digit gains in 2026.

But their profitability has been inconsistent.

Both MaxLinear ( MXL ) and VIAVI have swung between quarterly

profits and losses since their inception.

Shares of semiconductor equipment component maker Ichor

Holdings ( ICHR ) have jumped about fourfold this year, even

though it last reported a quarterly net profit in December 2022.