DXC Technology Company: Evaluating a Small-Cap AI Stock
We recently published a list of the 15 Best Small Cap AI Stocks to consider. This article takes a closer look at DXC Technology Company (NYSE:DXC) within that context.
Small-cap AI stocks present intriguing opportunities for investors looking beyond the established tech giants. Many of these companies are quietly developing specialized AI solutions, software, and applications that could significantly impact sectors like healthcare, finance, and manufacturing. While the larger tech companies have already experienced substantial growth driven by early enthusiasm and stock price appreciation, many smaller AI-focused companies remain relatively undervalued. This positions them as potential beneficiaries of the “second wave” of AI-driven growth, providing investors with an attractive entry point.
The Shifting Landscape of AI Investment
The initial wave of AI beneficiaries from 2023 to 2024 largely consisted of GPU manufacturers, semiconductor equipment providers, and large tech companies investing heavily in GPUs. The actual capabilities of current AI technology are roughly at the level seen when ChatGPT launched in early 2023. Analysts are now questioning whether the massive hardware investments are justified.
This issue was further highlighted in January 2025 with the claim of a Chinese startup, DeepSeek, training an AI model comparable to U.S. large language models at a significantly lower cost. Such developments could disrupt the AI training and inferencing market, particularly if they undermine the need for massive investment in GPU infrastructure. These developments may have important implications for global markets. The first-wave beneficiaries of AI could see a correction as demand for GPUs weakens. Conversely, a second wave of beneficiaries may emerge, as cheaper technology lowers the barriers to entry for startups and companies operating on tight budgets. This could accelerate the development of AI products and solutions with practical, mass-market applications, potentially leading to a new cohort of winners.
With this in mind, the key takeaway for readers is that this may be the right time to look for potential second-wave AI winners among small-cap companies with market capitalizations under $5 billion.
Economic Factors and Small-Cap Growth
Macroeconomic conditions may also become more favorable for small caps. Despite the Federal Reserve’s latest FOMC meeting decision to hold interest rates steady, potential GDP growth forecasts may increase the likelihood of interest rate cuts in upcoming meetings. Lower interest rates are generally favorable for small caps, reducing financing costs and supporting capital allocation toward growth projects.
Methodology
To identify potential investment opportunities, we used Finviz to screen for technology stocks with a market cap under $5 billion. While small-cap stocks typically have a market cap under $2 billion, we included companies below $5 billion to broaden the scope of AI firms. We then manually selected companies demonstrating significant revenue exposure or growth potential related to AI products and solutions. The final list was cross-referenced with the Q4 2024 database of hedge fund ownership to determine the top 15 stocks with the highest hedge fund ownership.
Why is it important to consider stocks hedge funds are investing in? Our research suggests that we can outperform the market by imitating the stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 373.4% since May 2014, outperforming its benchmark by 218 percentage points.
DXC Technology Company (NYSE:DXC)
Number of Hedge Fund Holders: 24
DXC Technology Company is a global IT services and solutions provider specializing in digital transformation. The company serves clients in various industries, including financial services, healthcare, manufacturing, and transportation. Its core offerings include consulting, systems integration, software development, application management, and data-driven analytics. DXC is actively expanding its AI capabilities, focusing on providing AI-driven solutions, automation platforms, and advanced analytics for growth in the AI market.
DXC demonstrated solid Q3 performance, with revenue, adjusted EBIT margin, and non-GAAP EPS exceeding guidance. The company’s financial metrics showed total revenue declined 4.2% year-over-year on an organic basis, while adjusted EBIT margin expanded 140 basis points year-over-year to 8.9%. Non-GAAP diluted EPS grew 7% year-over-year. The company showed significant improvement in bookings with a book-to-bill ratio of 1.3x, the highest in 8 quarters, reflecting the success of their revamped go-to-market approach. The pipeline continues to grow with a higher mix of deals in consulting and engineering services. These engagements, while less immediately lucrative, build a foundation for future growth.
DXC is actively investing in AI, as evidenced by partnerships with SAP and ServiceNow, and successful implementations for clients like Singapore General Hospital and Ferrari. The company faces ongoing concerns tied to trade policy, geopolitical conflicts, inflation, and labor costs, which continue to pressure corporate spending for discretionary projects, as clients look to balance cost optimization with AI-driven transformation programs. DXC’s top priority remains driving profitable and sustainable revenue growth, with a focus on client-centricity, performance management, and accountability. Currently, 24 hedge funds own the stock, making DXC one of the best small-cap AI stocks to buy right now.
Conclusion
Overall, DXC ranks 15th on the list of the 15 best small-cap AI stocks to buy right now. While acknowledging DXC’s potential, the analysis suggests that other AI stocks hold greater promise for delivering higher returns within a shorter timeframe. For investors seeking alternative AI investments, consider the other stocks discussed in the source material, particularly those trading for less than 5 times earnings.
