Look, I get it. Everyone and their crypto-obsessed cousin is throwing money at anything with “AI” in the name right now. Big Tech just dropped some seriously impressive Q2 earnings, and suddenly every analyst on Wall Street is acting like they just discovered fire. Price targets are flying around like confetti at a New Year’s party.
But here’s the thing – while everyone’s fighting over the same shiny AI toys, some pretty smart money managers are quietly sneaking into the clearance section of the stock market. And by clearance section, I mean small and mid-cap stocks that nobody’s talking about at cocktail parties.
“Smaller caps are historically undervalued,” says Alexander Wah from Prince Capital, and honestly, the guy’s got a point. The Russell 2000 has been having about as much fun as a vegetarian at a BBQ competition this year, but that’s exactly why it’s interesting.
Think about it: while everyone’s bidding up NVIDIA like it’s the last iPhone on Black Friday, there are companies quietly building the infrastructure that makes all this AI magic possible. Wah pointed out Sterling Infrastructure – a company that sounds about as exciting as watching paint dry but has actually gone up 4x since his fund bought in. Not too shabby for a “boring” stock.
Brandon Nelson from Calamos Investments is on the same wavelength, highlighting companies like Sterling, Lumentum Holdings, and Argan. These aren’t household names, but they’re the ones actually building the data centers and infrastructure that keep our AI overlords running. It’s like investing in the companies that make the shovels during a gold rush – sometimes more profitable than digging for gold yourself.
And here’s where it gets interesting from a policy angle: small-cap stocks might be about to get a serious tailwind from Washington. Joe Alger from Crestwood Advisors points out that the Trump administration is expected to be way more chill about mergers and acquisitions. Translation: bigger companies might start shopping for smaller ones again, which is great news if you own the small ones.
“I think that the smaller cap index is the most undervalued in comparison to the large cap index that I’ve ever seen,” Wah told Business Insider. That’s either the setup for a great opportunity or famous last words – but given his track record, I’m leaning toward the former.
The beauty of this whole situation is that while everyone’s crowding into the same AI darlings, there’s actual room to breathe in small-caps. Sure, they’re more volatile than your ex’s mood swings, but for investors who can handle the bumps, there might be some serious alpha hiding in these overlooked corners.
So while the masses are busy chasing the latest AI unicorn, maybe it’s worth taking a peek at the companies that are quietly building the infrastructure empire. After all, someone’s got to keep the lights on for our robot future – might as well profit from it.