3 Mid-Cap Stocks Turning Heads in AI, Automation, & Cybersecurity

Key Points

• Mid-cap stocks can provide a balance of risk and potential reward for investors looking for both growth potential and stability.
• The tech sector in particular is dominated by a small number of mega-cap names; mid-cap stocks here are often overlooked.
• Three mid-cap tech names to consider are Nebius Group, UiPath, and Varonis Systems.

Investors looking for a balance of risk and reward might turn to mid-cap stocks. Companies in this category may have a similar growth potential as smaller firms with a bit more of the stability typically seen in larger businesses. Given this balance, it may be a surprise that investors often overlook mid-cap names.

This is especially true in the tech sector, where a handful of mega-cap giants—Apple Inc. NASDAQ: AAPL, NVIDIA Corp. NASDAQ: NVDA, and their peers—consistently dominate both news headlines and investor attention.

In tech, having a robust valuation can be essential to dedicate sufficient resources to developing new technologies (this is one reason why the largest tech firms are often at the cutting edge of innovation). However, there are also mid-cap names that may not be on most investors' radars but still play an essential role in creating new technological possibilities.

Fast-Growing Revenue and Successful Scaling, Plus Bezos' Investment

Nebius Group N.V. NASDAQ: NBIS provides AI services and platforms for model training, data annotation, infrastructure and computing capability, and more. 

The Netherlands-based company has a market capitalization of about $8.4 billion.

Since 2024, Nebius has undergone a major shift in operations, including a new name, and is currently in a scaling phase that requires significant capital expenditures.

Nebius has posted sizable losses recently, including net losses from continuing operations of nearly $137 million for the last quarter of 2024 and almost $397 million for the full year. However, Nebius' revenue growth is impressive—466% year-over-year (YOY) for Q4 and 462% YOY for the full year. The company aims to achieve a goal of $750 million to $1 billion in annual recurring revenue by December 2025.

It also got a boost in May when news broke that Jeff Bezos would invest in Nebius' Tokola unit.

All four analysts rating NBIS have assigned a Buy, and the company enjoys 16% upside potential based on a consensus price target of $41.33.

Agentic Automation ARR Growth, Emerging Analyst Optimism

Robotic process automation software maker UiPath Inc. NYSE: PATH has emerged as a leader in the burgeoning agentic automation and robotics stocks space.

The stock plunged in May 2024 but has remained fairly flat for most of the time since then, although the last month has brought a steady increase in share price of about 23%.

UiPath's strengths include its strong annual recurring revenue growth, particularly in its cloud business. For the most recent quarter, the company's annual recurring revenue climbed by 14% YOY to nearly $1.7 billion, with cloud annual recurring revenue improving by more than 50% over the same period.

A strong and loyal customer base drives this, as UiPath achieved a 110% dollar-based net retention rate for the quarter.

To be sure, there are macro-level uncertainties about the AI space and increasing competition across the industry. This may be why the company has an overall Hold rating from over a dozen analysts.

Some of the more recent entries to the slate of analyses, though, suggest upside potential, with Royal Bank of Canada projecting a 16% gain and Canaccord Genuity forecasting a 38% gain.

Revenue Beat and Further Growth Expected for an Analyst Favorite

Shares of enterprise data software firm Varonis Systems Inc. NASDAQ: VRNS are up more than 10% in the last month, driven in part by better-than-expected revenue results in its most recent earnings report.

The company's SaaS platform is broadly popular and experiencing significant demand, which contributed to nearly 20% YOY revenue gains.

Following the success of its innovative platform, Varonis raised its full-year annual recurring revenue guidance to $742-$750 million, reflecting 16-17% YOY growth.

Strong cash flow management contributes to its momentum; in the latest quarter, the company grew operating cash flow to $68 million and free cash flow to $65.3 million.

With a consensus price target of $55.06, VRNS shares offer nearly 20% upside, and 14 of 19 analysts have given the stock a Buy rating.