These Tiny Companies Have Doubled the S&P 500's Gain This Year

In the era of artificial intelligence, tech giants with record-breaking market caps continue to dominate the headlines — all while companies a fraction of their size are quietly posting the best performances.

Market caps are a measure of the total value of the shares that companies have issued. And so far in 2026, micro caps — those with market caps below $300 million — have more than doubled the return of the 500 largest companies in the United States.

In May, the index tracking those tiny firms hit an all-time high. For investors looking to gain exposure and diversify with these under-the-radar stocks, here's what you need to know.

David and Goliath: a market cap primer

Mega caps are well-publicized stocks. They command the most influence over the markets, and their performances are often tied directly to the economy at large. Though figures can vary, mega caps typically boast market caps in excess of $200 billion.

That's just the baseline. There are currently 11 U.S.-listed companies whose market caps exceed $1 trillion, with Nvidia — the world's largest publicly traded company — valued at $5.36 trillion. In other words, Nvidia's valuation is larger than the GDP of every country on Earth other than the U.S., China and Germany.

The S&P 500 is comprised of mega caps and large caps (companies with valuations ranging from $10 billion to $200 billion). By contrast, the Russell Microcap Index tracks the performances of the smallest 1,000 companies in the Russell 2000 (the index of the smallest 2,000 companies in the Russell 3000, which itself is an index of the entire U.S. stock market), and up to 1,000 additional micro-cap companies.

This year, the Russell Microcap Index has gained 17.55%, compared to the S&P 500's year-to-date gain of 8.72%.

Micro caps are shielded from tariff and concentration risks

Because they have grown so massive, mega caps dominate the S&P 500. Today, the top 10 companies in that index account for approximately 40% of its weighting, meaning investors who own shares of funds tracking the S&P 500 are allocating 40 cents out of every $1 to just 10 of the index's 500 companies.

That presents considerable concentration risk. When these mega-cap companies see big gains and losses, it can have an outsized impact on the indices tracking them.

Last October, a notable selloff that dragged down mega caps carried into the first quarter of 2026. That tech slump led to the Nasdaq briefly entering a correction, which was directly attributed to sizable losses for members of the Magnificent Seven and leading software stocks, as well as a broader flight to safety as investors looked to avoid additional downside risk.

That market rotation helped micro caps outperform the major domestic large-cap indices for four consecutive quarters, according to investment management firm Franklin Templeton. Over the past year, the Russell Microcap Index has gained more than 57%; the S&P 500 has gained about 27%.

While the S&P 500 has performed far better in the second quarter of 2026, concentration risk remains. The index's winning streak is now up to six consecutive weeks. But just five companies — Nvidia, Micron, Apple, Advanced Micro Devices and Intel — accounted for 75% of its gain last week.

With investors increasingly wary of large- and mega-cap stocks' elevated valuations, the flight to safety didn't just result in an exodus from tech and into slow-and-steady S&P 500 sectors. It also saw massive inflows into small caps (companies with valuations of $250 million to $2 billion) and micro caps.

The outperformance for that cohort of stocks is expected to continue, as the market environment is rife with catalysts that favor smaller companies. One tailwind is micro caps' limited international exposure.

"Most smaller companies generate the bulk of their revenue domestically, reducing sensitivity to tariffs and slowing global growth," Adam Turnquist, chief technical strategist for LPL Financial, writes in an email to Money.

According to Turnquist, micro caps are expected to return to earnings growth this year for the first time since 2021, with revenue projections trending higher through 2027.

He notes that since April 2025, charts comparing the Russell Microcap Index with the S&P 500 show the former breaking out, with "sustained improvement in relative strength [suggesting] the trend may still have further room to run."

Micro caps carry macro caveats

Research from Franklin Templeton indicates that since 1978, when small- and micro-cap stocks' annualized five-year returns were 5% or less — as they have been since 2021 — subsequent three- and five-year returns were positive 100% of the time.

But for investors who are considering adding exposure to micro caps, it's important to understand that they are inherently more volatile than their large- and mega-cap counterparts.

The S&P 500 represents the largest and most stable publicly traded U.S. companies. Conversely, micro caps lack the competitive moats that companies like Nvidia and Walmart have established over decades. That can lead to relative financial instability. It also makes micro caps more susceptible to headline risk, or the danger of news events negatively impacting stock prices.

Liquidity is another issue. Micro caps routinely have much lower floats (the number of shares available to the public for buying and selling on the open market). That results in lower average daily trading volume, which in turn makes those stocks considerably illiquid. In the event that investors want to sell shares, there's no guarantee of a buyer.

Together, this makes micro caps highly speculative investments. Investors should be aware of the risks before allocating funds toward them.

"Mega-cap stocks continue to dominate investor attention," Turnquist says. "[But] the strength of micro caps is not just a short-term development."