(MENAFN- Yolo Wire) After years of underperformance, small-cap stocks are soaring as market uncertainty grows and investors look for alternatives to the artificial intelligence (A.I.) trade.

Analysts say that small-cap stocks are quietly stealing the show heading into the year's fourth quarter, having staged an impressive rally since August.

In fact, small-cap stocks are closing in on the benchmark S&P 500's gains so far this year and could end up being the surprise winners of 2025.

The Russell 2000 index of small-cap stocks is now up 13.7% on the year, while the large-cap S&P 500 has risen 14% year-to-date, according to data from FactSet (FDS).

The last time the Russell 2000 outperformed the S&P 500 on a year-to-date basis was on Feb. 6, according to market data.

Analysts attribute the rise in small-cap stock prices to concerns that valuations of high-flying technology stocks have reached unsustainable levels.

Small-cap stocks now look attractive relative to their large-cap peers, drawing investors who want cheaper valuations combined with growth opportunities.

That the Federal Reserve has resumed cutting interest rates is also positive for small-cap stocks that tend to borrow more money to fuel their operations and growth, say analysts.

Small-cap stocks that have performed strongly in recent months include Quantum Computing (NASDAQ: $QUBT) and Urban Outfitters (NASDAQ: $URBN) to name only a few.

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