Digi International (DGII) Benefited from Faster Than Expected Recurring Services Revenue

Conestoga Capital Advisors, an asset management company, released its fourth-quarter 2025 investor letter. As many believe, US equities experienced solid returns in 2025, with double-digit gains across all major indices, yet underlying conditions revealed extreme volatility and market leadership. A copy of the letter can be downloaded here. In Q4 2025, Conestoga Capital Advisors Small Cap Strategy returned -1.89% net-of-fees, trailing the Russell 2000 Growth Index’s 1.22% return. The returns were volatile in the quarter. The “low quality” stocks rally persisted in the quarter, but at a slower pace compared to earlier quarters. Please review the Strategy’s top five holdings to gain insights into their key selections for 2025.

In its fourth-quarter 2025 investor letter, Conestoga Capital Advisors highlighted Digi International Inc. (NASDAQ:DGII). Digi International Inc. (NASDAQ:DGII) is an Internet of Things technology provider specializing in connectivity products, services, and solutions. On February 18, 2026, Digi International Inc. (NASDAQ:DGII) stock closed at $49.64 per share. One-month return of Digi International Inc. (NASDAQ:DGII) was 13.59%, and its shares are up 41.67% over the past twelve months. Digi International Inc. (NASDAQ:DGII) has a market capitalization of $1.87 billion.

Conestoga Capital Advisors stated the following regarding Digi International Inc. (NASDAQ:DGII) in its fourth quarter 2025 investor letter:

DGII provides connectivity solutions, including routers, gateways, and embedded systems. The stock performed well in the quarter as recurring services revenue grew faster than expected and margins expanded with mix shift toward software and subscriptions. Improved demand visibility in industrial and infrastructure end markets, along with disciplined expense management, supported earnings upside. Investors increasingly valued the company’s transition toward a higher-quality, recurring-revenue business model, differentiating it from more hardware centric small-cap technology peers.

Digi International Inc. (NASDAQ:DGII) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 16 hedge fund portfolios held Digi International Inc. (NASDAQ:DGII) at the end of the third quarter, up from 11 in the previous quarter. In the first quarter of 2026, Digi International Inc. (NASDAQ:DGII) delivered record revenue of $122 million, up 18% year over year. While we acknowledge the potential of Digi International Inc. (NASDAQ:DGII) 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 Digi International Inc. (NASDAQ:DGII) and shared Riverwater Partners Small Cap Strategy's views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q4 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.