Small caps last week: Innodata linked to Muse, Viking data, higher rates hit segment

Last week, media reports linked data engineering firm Innodata to the development of Muse, the AI agent Meta launched at the beginning of the month, while Viking Therapeutics reported that its obesity drug helped participants in a study to lose weight and keep it off. Meanwhile, with the prospect of further Fed rate hikes threatening the small-cap rally, Oninvest explained how to pick stocks in the segment. These stories headline our recap of happenings in the small-cap space for the week of September 21-25.

Innodata, a company specializing in training AI models, may be behind Muse, the AI agent from Meta, Hunterbrook Media reported. In addition, the investigative news outlet wrote that its affiliated activist fund, Hunterbrook Capital, had taken a long position in Innodata. The company’s stock soared almost 15% on Tuesday.

Hunterbrook based its conclusion about Innodata’s role in developing Muse on interviews with former employees, an analysis of the company’s job postings, and public statements by top executives that it had won “a significant new program with our largest customer covering personalization of long-horizon agents.”

Neither Innodata nor Meta has confirmed the story. The scope and terms of their collaboration are unknown, but Hunterbrook believes the continued development of Muse could generate new data and testing orders for Innodata. The Muse app, through which the new AI agent is available, has become the top free app in Apple’s U.S. App Store following its September 8 launch.

All three Wall Street analysts covering Innodata are bullish: two rate it a “buy,” while one has an “overweight” rating, with the average target price at $123.70 per share, implying almost 79% upside from Friday’s close.

After a strong first half for small caps, gains have slowed: the Russell 2000’s year-to-date lead over the S&P 500 has narrowed from 11 percentage points in June to just 2 percentage points, Bloomberg writes. The prospect of further Fed rate hikes is particularly worrisome for companies that will soon need to refinance debt.

According to Vadim Merkulov, head of research at Freedom Finance Global, interest expense for Russell 2000 companies equals around 31% of EBITDA, versus 6.7% for S&P 500 companies. Almost 40% of Russell 2000 constituents remain unprofitable.

Merkulov recommends avoiding heavily indebted companies and unprofitable biotechs that will soon require fresh financing. Among small caps, he advises looking for profitable, resilient businesses and checking how much debt they must repay or refinance over the next 6-24 months. Merkulov is against exiting small caps altogether, but he believes investors now need to be more selective.

Biopharma company Viking Therapeutics reported positive results from a small study of its obesity drug, VK2735, which targets two receptors involved in appetite regulation. After 21 weeks of weekly injections, participants in different groups lost 16-19% of their body weight. After transitioning to less frequent injections, once or twice a month, some patients maintained 90-97% of the weight they had lost. The company described the drug’s tolerability profile as favorable.

Viking shares gained 36% on Tuesday. The ability to maintain weight loss with less frequent dosing was welcome news for Viking following setbacks in trials last year.

Wall Street is almost unanimously bullish on Viking: 18 of its 20 recommendations are “buy,” the other two “hold.” The average target price is $95.70 per share, implying 170% upside from Friday’s close.

Voyager Technologies, a defense tech supplier that is developing the Starlab orbital station as a potential commercial successor to the International Space Station, is planning a convertible note offering, and investors are concerned about potential shareholder dilution. That sent the stock down more than 16% on Wednesday.

The offering is for $350 million for 0% notes that mature in October 2032. The initial conversion price is approximately $40.82 per share, around 30% above the last close. Voyager said it entered into capped call transactions alongside the offering to limit potential dilution for existing shareholders upon conversion of the notes.

In the second quarter, the company’s top line rose 15% year over year to a record $52.7 million, while its order book stood at $335.5 million. The management has raised its full-year 2026 revenue guidance from $230-255 million to $275-305 million, around 66-84% above the actual 2025 level.

Voyager stock has eight “buy” calls versus two “sell” ratings, according to MarketWatch data. The average target price is $46.70 per share, implying around 50% upside from Friday’s close.