Do You Believe in the Growth Potential of Q2 Holdings (QTWO)?

QTWO +0.29% ^GSPC +0.22%

Fred Alger Management, an investment management company, released its “Alger Small Cap Focus Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. U.S. equity markets continued their upward trajectory in the third quarter with the S&P 500 Index rising 8.12%. A combination of improving economic conditions, solid corporate earnings, and growing expectations for monetary easing propelled the robust equity market. Against this backdrop, the class A shares of the fund underperformed the Russell 2000 Growth Index. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its third-quarter 2025 investor letter, Alger Small Cap Focus Fund highlighted stocks such as Q2 Holdings, Inc. (NYSE:QTWO). Q2 Holdings, Inc. (NYSE:QTWO) is a digital solutions provider to financial institutions, financial technology companies, FinTechs, and alternative finance companies. The one-month return of Q2 Holdings, Inc. (NYSE:QTWO) was 17.90%, and its shares lost 31.35% of their value over the last 52 weeks. On November 27, 2025, Q2 Holdings, Inc. (NYSE:QTWO) stock closed at $71.73 per share, with a market capitalization of $4.485 billion.

Alger Small Cap Focus Fund stated the following regarding Q2 Holdings, Inc. (NYSE:QTWO) in its third quarter 2025 investor letter:

"Q2 Holdings, Inc. (NYSE:QTWO) provides secure, cloud-based digital banking software to regional and community financial institutions, offering retail and commercial digital banking, lending, and related solutions delivered as subscriptions. During the quarter, the company reported solid second-quarter results and raised its full-year outlook. However, shares detracted from performance as investors focused on several mixed signals: management noted higher-than-typical churn, a slight sequential dip in gross margin related to cloud-migration costs, and muted growth in discretionary services, all of which tempered enthusiasm around the otherwise strong subscription momentum and guidance raise. Further, we believe the stock experienced a valuation reset amid mixed sell-side signals and elevated headline valuation metrics, which added pressure late in the quarter. In our view, Q2’s long-term fundamentals remain intact, as the company is well positioned to benefit from the continued digitization of banking and expanding relationships with larger institutions."

Q2 Holdings, Inc. (NYSE:QTWO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 28 hedge fund portfolios held Q2 Holdings, Inc. (NYSE:QTWO) at the end of the third quarter, which was 29 in the previous quarter. While we acknowledge the potential of Q2 Holdings, Inc. (NYSE:QTWO) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Q2 Holdings, Inc. (NYSE:QTWO) and shared the list of overlooked tech stocks to invest in. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.