Viavi Solutions: A Small-Cap Tech Play Riding the Russell Reconstitution Wave

The annual Russell US Indexes reconstitution, a ritual that reshapes portfolios and triggers billions in trading activity, has handed Viavi Solutions (NASDAQ: VIAV) a strategic boost: inclusion in the Russell 2000 Growth Index. This move positions the optical networking and test equipment specialist to benefit from passive fund inflows, while its recent performance and acquisitions underscore a shift toward high-growth tech sectors. Here's why investors should take note.

The Russell Reconstitution Catalyst

The Russell 2000 Growth Index, which tracks small-cap companies with strong earnings momentum and valuation metrics, recalibrates annually to reflect changes in market capitalization and style. Viavi's addition—effective June 30, 2025—means it will now be included in passive funds tracking this benchmark. Historically, such reconstitutions spark buying frenzies: in 2024, over $220 billion flowed through Russell-indexed equities as funds rebalanced.

For Viavi, this could mean immediate liquidity. While the stock has been range-bound in recent quarters, its inclusion in a growth-focused index signals to passive investors that its fundamentals align with small-cap tech's rising tide.

A Strategic Bet on High-Growth Tech

Viavi's inclusion isn't arbitrary. The company has positioned itself at the intersection of two megatrends: 5G infrastructure rollouts and cloud-driven data demand. Its test and measurement tools are critical for telecoms and hyperscalers validating network performance, while its acquisition of Optimal Networks (2024) expanded its software portfolio for automated network diagnostics.

Recent financials, though not disclosed in full, hint at progress:
- Revenue: The company reported sequential growth in Q3 2025, driven by 5G and enterprise cloud contracts.
- Margins: Gross margins expanded to 53% in 2024, up from 50% in 2021, reflecting operational discipline.

Analysts project 12% revenue CAGR through 2027, fueled by its Photonics division, which designs optical components for next-gen data centers.

Institutional Buying Signals: The Passive Tailwind

The Russell reconstitution's timing matters. Active and passive managers alike will need to buy Viavi shares to mirror the index, creating a “forced buying” environment. For a stock with an average daily volume of ~1.2 million shares, the influx of index-tracking assets—potentially worth hundreds of millions—could push its valuation higher.

Moreover, small-cap growth stocks are in vogue. The Russell 2000 Growth Index outperformed its value counterpart by 7.5 percentage points in the 12 months to April 2025, as investors rotated into companies with secular growth narratives. Viavi's exposure to 5G and AI infrastructure positions it to capitalize on this trend.

Risks and Considerations

• Valuation: At a P/E of 22x trailing earnings (vs. its 5-year average of 18x), the stock is no bargain. Investors must weigh growth prospects against premium multiples.
• Execution: Its acquisition pipeline and software integration efforts must deliver synergies to justify the repositioning.
• Market Volatility: Small caps are sensitive to macroeconomic shifts. A slowdown in tech spending or rising interest rates could pressure the stock.

The Investment Case

Viavi's inclusion in the Russell 2000 Growth Index is more than a technicality—it's a vote of confidence in its pivot to high-margin software and its role in enabling next-gen networks. While the stock isn't cheap, the combination of passive fund inflows and its secular growth story makes it a compelling near-term play.

Recommendation: For investors with a 6–12-month horizon, consider a gradual build into Viavi around its reconstitution-driven liquidity surge. Pair this with a stop-loss at 10% below entry to mitigate small-cap volatility. Long-term holders should track execution on its software initiatives and 5G contract wins.

The Russell reconstitution rarely offers free lunches, but Viavi's strategic moves and its new index status make it a candidate worth chasing.