Six small caps punching above their weight in the cybersecurity market
In 2025, digital forensics and cybersecurity technologies are increasingly in the spotlight due to rising numbers of cyberattacks and growing regulatory requirements. The U.S. SEC requires public companies to report major cyber incidents within four business days, and a shortage of specialists is spurring demand for automated solutions. As a result, the global digital forensics market is growing rapidly, with expected growth from $13 billion in 2025 to over $22 billion by 2030.
Investors should not only look at the major players but also consider the small players offering niche innovations. That said, investing in the latter comes with higher risks, from elevated volatility to strong competition from large peers; but the potential for growth here is also great: Cybersecurity solutions have become a necessity for businesses and governments.
Analyst Aldiyar Anuarbekov has compiled a list of smaller cybersecurity companies that investors should pay attention to.
Telos: The U.S.-based company has been a provider of solutions to the U.S. government for decades and is now bringing its expertise to a wider audience. Telos' products, including the Telos Ghost cloud-based secure network and cloud security solutions to protect cloud-based assets, emerged based on the needs of the intelligence sphere and the military-industrial complex. This gives the company a unique advantage: It has worked with such institutions as banks and federal agencies, which have high security requirements.
In the first quarter, Telos revenue increased 3.4% year over year to $30.6 million, and the company projects growth of 14-21% in the second quarter. While the business has yet to reach sustainable profitability, Telos has substantial cash on its balance sheet. Stock analysts are optimistic, too: The consensus forecast sees upside of about 42% versus the closing price on Friday, June 13. If demand for cybersecurity and secure networks continues to grow under regulatory pressure, this bodes well for Telos.
Nuix: This Australian tech company produces investigative analytics and intelligence software for extracting knowledge from unstructured data, from correspondence to images. It was Nuix that helped the International Consortium of International Journalists journalists to parse the Panama Papers (2.6 terabytes of data) and find links between names and companies in them. Nuix's clients include the UN, the U.S. Secret Service, and dozens of law enforcement agencies.
In fiscal 2024, the company's revenue increased 21% to AUD220.6 million (approximately $143.9 million). Subscription revenue in 2024 was more than AUD12 million. Near-term risks remain, however: in the first half of fiscal 2025, revenue growth slowed to 7%, and the company is still unprofitable. Investors should keep an eye on whether it can accelerate sales of its Neo data processing platform and maintain positive cash flow.
Cellebrite: Headquartered in Israel, this digital forensics company provides tools and services for accessing and extracting data from locked and encrypted digital devices. Cellebrite has built a broad, global base of clients, including police departments and government agencies.
For investors, Cellebrite is interesting due to its combination of growth and sustainability. The company's revenue in 2024 was up 23% at $401 million, with almost all of it, about 98%, coming from subscriptions (SaaS). Regular payments for software mean more predictable and stable income. Annual recurring revenue from subscriptions in 2024 increased to $396 million. Meanwhile, the net retention rate came in at an impressive 124%.
In 2024, Cellebrite aggressively grew its cloud business, which contributed 17% of its annual recurring revenue, almost double the year before. Overall, the company generated about $122 million in free cash flow for the year. Cellebrite recently received FedRAMP certification to operate cloud services in the U.S. public sector.
Cellebrite's market capitalization is about $4 billion. The stock trades at an EV/sales ratio of about 8, well above the median values for the software & IT services sector (2.2) and the tech sector (2.0). But given Cellebrite's own guidance of 20-22% revenue growth in 2025 (to $480 million), the current figure looks justified.
Micro Systemation AB: MSAB, engaged in the provision of forensically secure tools for the extraction and analysis of data from mobile devices, serves mainly government clients, like police, special services, defense, immigration, and customs. In recent years, the company has been transitioning to subscriptions, which provides steadier revenue. Meanwhile, MSAB's reliance on government clients is both a major strength and a weakness. Among other negative factors working against the company are fierce competition in digital forensics and robust security features of modern smartphones.
In 2024, MSAB's revenue decreased 2.7% to about SEK405 million (about $40 million) due to delays in large-scale orders in the U.S., where "U.S. federal budget processes affected some projects." EBIT, however, rose 13.2% to SEK46 million. MSAB's market capitalization is now only about SEK980 million (about $120 million), and shares now trade at an EV/sales ratio of 2, giving investors an attractive opportunity to enter the promising digital forensics space. Another positive factor is MSAB's regular dividends.
Veritone: Once a "cognitive media platform," U.S.-based Veritone is now a provider of AI technology and solutions for law enforcement. It is known for its aiWARE platform, which can transcribe audio and video recordings, translate speech, and extract key fragments from gigabytes of files. These features save hundreds of hours of work for investigators and prosecutors, which is why demand for them is steadily growing. In addition to government agencies, Veritone is active in the private sphere with its Veritone Data Refinery (VDR), which converts unstructured data into structured datasets suitable for training LLMs and LMMs. In the first quarter of 2025, the near-term pipeline for VDR doubled to $10 million.
The company is currently undergoing a makeover, selling unprofitable segments (e.g., its advertising business) and investing in AI-based products. Revenue in the first quarter dropped 7% year over year to $22.5 million. However, annual recurring revenue from subscriptions was roughly $59 million in the period, while first-quarter losses were down versus the year before. Veritone is more of a venture capital story with high risk/high rewards, aiming to become a prominent player in the AI market.
Cognyte Software: This Israel-based company produces security analytics software. In essence, it is an analytical center that helps law enforcement and intelligence agencies to find needles in haystacks of data, from open-source information on the internet to special channels. The role of AI is biggest here, as the software independently looks for suspicious patterns and connections.
Cognyte's 2024 revenue rose 12% to $350.6 million. In the first quarter of 2025, revenue jumped 13% year over year, and for the first time in several years, the company posted a small operating profit of $700,000, versus an operating loss of $2.9 million in the same period last year. Cognyte's shares have advanced nearly 9% since the beginning of the year, bringing the market capitalization to $690 million. Amid geopolitical instability, investors are anticipating increased demand for software that can predict attacks and crimes. Cognyte has carved out a profitable niche for itself, and despite competition from giants like Palantir and NSO Group, the company has a chance to become one of the key suppliers of software to governments around the world.
