ARCC vs. HTGC: Which BDC Stock Is Positioned Better for Growth?

Ares Capital Corporation ARCC and Hercules Capital, Inc. HTGC are two leading Business Development Companies (BDCs) focused on income-oriented investing. Both companies primarily provide senior secured and structured debt financing to middle-market U.S. companies, generating the bulk of their revenues from interest income.

ARCC has a diversified portfolio spanning corporate borrowers, acquisition finance and power projects, supported by a sizeable asset base and a strong revolving credit facility. By contrast, Hercules Capital stakes its claim as a more focused, venture-oriented lender, concentrating on high-growth technology and life sciences companies.

As interest rates have been coming down, the demand for refinancing and originations is rising. Thus, BDCs will gain from this turnaround in the operating backdrop. Hence, a question arises: which BDC stock, among ARCC or HTGC, is better positioned for growth? In order to understand this, let us dive into their fundamentals, financial performance and growth outlook.

The Case for Ares Capital

ARCC’s investments in corporate borrowers generally range from $30 million to $500 million, while its investments in power generation projects are between $10 million and $200 million. It offers customized financing solutions, ranging from senior debt instruments to equity capital, with a focus on senior secured debt.

In the first nine months of 2025, ARCC witnessed year-over-year growth in total investment income. This was largely driven by an increase in interest income from investments, capital structuring service fees and other income. Also, the company recorded decent portfolio exits and gross commitments.

Between 2019 and 2024, Ares Capital’s total investment income witnessed a compound annual growth rate (CAGR) of 14.4%, driven by higher demand for personalized financing solutions, leading to increased investment commitments. The company originated $15.1 billion, $6 billion, $9.9 billion, $15.6 billion, $6.7 billion and $7.3 billion in 2024, 2023, 2022, 2021, 2020 and 2019, respectively, in gross investment commitments to new and existing portfolio companies.

As of Sept. 30, 2025, ARCC had a diversified investment portfolio with 23.2% of its investments in software & services, and 11.9% in healthcare equipment & services. Other major investment areas were commercial & professional services (11.4%), financial services (10.5%), and insurance services (5.9%). While this reduces concentration risk and enhances the sustainability of total investment income, many of these industries are expected to face headwinds because of tariffs.

The Case of Hercules Capital

HTGC's investments generally fall between $15 million and $40 million. It offers customized financing solutions ranging from senior debt to equity capital, with a focus on structured debt with warrants. It invests in companies that have been in business for at least six months to one year before the date of investment and expects these investments to generate revenues within at least two to four years.

In the first nine months of 2025, Hercules Capital witnessed growth in total investment income. Also, the company recorded a rise in gross new debt and equity commitments during the period.

Over the last five years (2019-2024), Hercules Capital’s total investment income witnessed a CAGR of 13%. Additionally, the company closed $2.6 billion, $3.1 billion, $2.2 billion and $2.7 billion in new debt and equity commitments in 2021, 2022, 2023 and 2024, respectively. Driven by the rise in demand for customized financing and a robust deal pipeline, total new commitments are expected to keep rising.

As of Sept. 30, 2025, HTGC had an investment portfolio of $4.31 billion. It had 35.3% of its portfolio investments (at fair value) in software companies and 23% in drug discovery & development companies. Other major investment areas were other healthcare services (19.3%), and consumer & business services (10.1%). With a focus mainly on the technology and life science sectors, HTGC is better placed to counter tariffs.

How Do Earnings Estimates Compare for ARCC & HTGC?

The Zacks Consensus Estimate for ARCC’s 2025 and 2026 earnings indicate 14.2% and 2.2% declines, respectively. Over the past two months, earnings estimates for 2025 have been unchanged while estimates for 2026 have been revised lower. This indicates analysts’ bearish sentiments.

Earnings Trend

On the contrary, analysts are more optimistic about HTGC’s prospects. While the consensus mark for 2025 earnings suggests a 4% decline, for 2026, earnings are expected to grow 4.9%. Over the past 60 days, earnings estimates for 2025 have been revised upward, while the same for 2026 have been unchanged.

Earnings Trend

ARCC & HTGC: Price Performance & Valuation Analysis

In the past six months, shares of Hercules Capital have declined 1.7%, whereas the Ares Capital stock has lost 10.4%. The industry to which the stocks belong has fallen 9.8% in the same time frame.

6-Month Price Performance

Valuation-wise, ARCC is currently trading at a 12-month forward price-to-earnings (P/E) of 10.33X. The HTGC stock, alternatively, is currently trading at a 12-month forward P/E of 9.08X. Therefore, Hercules Capital is inexpensive compared with Ares Capital.

P/E F12M

ARCC or HTGC: Which Stock Has Better Upside?

As the operating environment is gradually turning favorable, Hercules Capital is better positioned for long-term growth than Ares Capital. HTGC’s focus on venture debt in high-growth technology and life sciences sectors provides a structural edge, and its rising investment commitments and projected 2026 earnings growth point to sustained momentum. The stock also looks appealing on a valuation basis.

By contrast, ARCC’s broader industry exposure leaves it more vulnerable to tariff-related headwinds. Analysts have revised earnings estimates downward, and the stock’s premium valuation limits near-term upside. Although ARCC offers income stability through a diversified portfolio and reliable dividends, HTGC’s sector specialization, stronger efficiency and superior earnings trajectory make it the more compelling choice for investors seeking long-term returns.

At present, HTGC carries a Zacks Rank #3 (Hold), while ARCC has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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