3 Small-to-Mid-cap Stocks to Buy and Hold for 2025

Key Points

• LightPath Technologies is positioned to profit from an IoT boom that is expected to begin next year.
• Braze is growing at a double-digit pace and is expected to sustain this pace in 2025 as businesses depend more on customer engagement software. 
• Guidewire is driving efficiency with AI in an industry that desperately needs it.

2025 will be a good year for stocks, especially smaller companies like Braze NASDAQ: BRZE, LightPath Technologies NASDAQ: LPTH, and Guidewire NYSE: GWRE. Not only is the FOMC on track to reduce interest rates and usher in a new age for equities, but the AI focus will move from infrastructure to application, where these businesses will shine. Simply put, as big as the AI infrastructure boom has been, the boom in AI-driven services expansion will be bigger and create the next round of would-be multi-baggers for equity investors. What exactly is a multi-bagger? In the words of Peter Lynch, multi-baggers are stocks that have returned more than 100% of the initial investment as profits and often much more. 

LightPath Technologies Helps the IoT See

LightPath Technologies isn’t about revolutionizing AI technology, but it is in a perfect position to profit from AI's impact while advancing its technology with AI. AI is expected to unlock the potential of the IoT, which is where LightPath’s technology will flourish. It makes optical sensors and devices that capture and store light-generated data, which will be critical to an industry focused on generating actionable information from data inputs. Among the applications are automating industrial processes and robots, autonomous driving, and lasers. 

Results in 2024 are sluggish, with revenue growing at a low-single-digit pace. However, analysts forecast revenue growth to accelerate to nearly 20% in 2025 and may underestimate demand. Developments since the last report include hitting a significant milestone relating to a DOD contract and approval to sell to the European Defense industry. The DOD milestone allows LightPath to deliver flight-worthy thermal imaging components to Lockheed Martin for a major missile defense product. 

Sell-side interest is helping to support LPTH price action and suggests a triple-digit upside for the market. MarketBeat only tracks three analysts with ratings; only two reports were released this year. Still, they pegged the stock at Buy and saw it advancing 150% at the consensus, and institutions are also interested. The institutional interest is more telling, with the balance of activity bullish for six consecutive quarters, increasing the total holding to over 55% of the stock. 

Braze Makes Customers Happy: Businesses Like It

Braze operates a platform and suite of services for customer engagement. Its platform helps businesses connect with and manage client relationships while providing value to consumers. Growth has slowed from its peak but remains solid in the high 20% range and is expected to sustain at that level next year. 

Growth is driven by increasing client counts and deepening penetration. Penetration is driving a 114% net retention rate, meaning existing clients are generating 15% more revenue this year than last. Highlights from 2024 include a wider gross margin, the first quarter of adjusted profits, and an expected profit growth acceleration in 2025. 

MarketBeat.com tracks 17 analysts with ratings on Braze. They show a high conviction in the Moderate Buy rating and expect a double-digit stock price increase. The range of analysts' targets implies a 40% upside at the low end and over 70% at the consensus midpoint. 

Guidewire Software: Up 200% and the Rally Is Just Getting Started

Guidewire Software operates a suite of platforms and services for the insurance industry. Its products can be used as stand-alone services or integrated into a system that includes policy sales, delivery, and claims.

The company uses AI to automate operations and improve efficiency in an industry in need and is monetizing today. Revenue growth is expected to accelerate, and the margin to widen in 2025. 

The analysts' activity is supporting GWRE stock price action in 2024. The consensus target lags the market but is up 75% in the last 12 months, with much of the gain occurring since the last earnings report. The high-end range assumes an 8% upside relative to recent action and will likely increase as the fiscal year progresses.