Why Artificial Intelligence Is a Mid-Cap Trend, Too
AI isn’t just a growth driver for mega-cap firms. Midsize companies may also stand to benefit.
Key Takeaways
Mid-cap stocks could provide exposure to AI-powered growth but at possibly more attractive valuations.
Investment in data centers is helping companies in construction, equipment and power. Other companies are building AI into their offerings.
However, many businesses report not yet seeing significant benefits from AI, which could dampen corporate spending on this technology.
Artificial intelligence (AI) has helped drive results for the Magnificent Seven and other large-cap companies. But they’re not the only ones benefiting from this trend.
The world’s largest tech firms are investing billions in new data centers, and a significant portion of their spending is flowing to midsize companies. In many cases, these are the vendors and contractors building the facilities. They’re also making the components and connectors that live in data centers’ server racks.
Meanwhile, other mid-cap companies are seizing AI’s potential by embedding the technology in their products and innovations.
We believe mid-caps with AI exposure represent an opportunity for investors. To understand this trend, let’s examine how mid-caps participate in the AI theme.
How Are Mid-Cap Companies Benefiting from AI Adoption?
Expanding AI Infrastructure
Data Center Design and Construction
Management consulting firm McKinsey & Co. forecasts that companies will spend about $6.7 trillion on data center infrastructure between 2025 and 2030.1 Nearly $1 trillion could go to the businesses constructing these facilities.
Mid-caps can participate in this trend in several ways, like preparing building sites or installing mechanical, electrical and plumbing systems. Comfort Systems USA, which works on these systems, reported that its backlog grew about 40% between June 2024 and June 2025.2
Data centers also need to be cooled 24/7, which boosts the demand for companies specializing in air conditioning and cooling. One such company, Vertiv, reported an $8.5 billion backlog at the end of June 2025.
Producers of Technology Components
Although semiconductor companies like NVIDIA attract considerable attention, chips aren’t the only components that data centers rely on.
They also require connectors and interconnect systems that can reliably and quickly move data between servers and entire centers. Mid-cap firms are key players in this area.
For example, Ciena makes optical components that connect data centers and is introducing new products that can connect AI servers.
Utilities and Energy Suppliers
Data centers use vast amounts of power, partly because AI semiconductors consume much more power than other chips. This higher demand creates opportunities for utilities and energy companies, including firms that generate power from nuclear and natural gas.
Vistra, a Texas-based energy company, is expanding its natural gas generation capabilities to meet rising demand.3 It has pointed to data center growth as one reason for the increase.4
We also see opportunities in power grids and transmission. More energy plants are coming online, but the grid often lacks the capacity to handle this extra power. We think this may generate opportunities for design and construction firms involved in expanding or upgrading energy infrastructure.
Companies that make critical machinery could also benefit.
Howmet Aerospace, a leading maker of jet engine parts, also makes airfoils, rings and other parts for the gas turbines used to power data centers.
Implementation of AI
Commercial and Professional Services
Risk Assessment and Analysis
Artificial intelligence can harness colossal amounts of data to provide faster, more complete analysis tools.
Verisk Analytics serves the insurance industry and has developed AI-powered solutions to assist with underwriting decisions, research and forms management.5
Security Services
Axon, known for Taser and other security technologies, has introduced several AI-powered solutions. These include real-time language translation for law enforcement officers and a chatbot where officers can access department policies.
Axon also offers Draft One, a tool that analyzes the audio from officers’ bodycam footage to help draft incident reports. The company says Draft One can cut time spent on report writing by about half or more.6
Health Care
Scanning and Diagnosis
Several companies have developed tools that pair AI with medical scanning technology. G.E. HealthCare alone has won 100 medical device authorizations from the U.S. Food and Drug Administration for its AI-enabled tech.7
These tools highlight abnormalities that physicians and other medical personnel might miss, while also speeding up reviews. According to one recent study, AI-powered mammograms could help prevent about 30% of breast cancers.8
At the same time, this remains a nascent technology. One study found that using AI doesn’t always improve radiologists’ performance.9
Drug Development and Testing
Mid-cap companies are employing AI in drug discovery and testing. AI could potentially unlock up to $110 billion in economic value annually for the pharma and medical product industries.10
IQVIA, for example, has developed agentic AI tools that aim to streamline clinical trials, which often take months just to set up.11 These solutions can monitor all parts of the process to identify problems quickly, recommend solutions and ensure regulatory compliance.
As a result, new drugs could reach the market more quickly and at a lower cost.
Consumer Discretionary
Entertainment and Education
Other companies use AI to scale content creation, improve advertising performance and increase audience engagement.
Earlier this year, learning app Duolingo debuted nearly 150 language programs developed with AI.12 Duolingo’s premium service also features an AI-powered “live chat” where users speak with an animated character to practice a new language.
Roku, the streaming platform and device manufacturer, uses AI to personalize content recommendations and increase viewership. The company is also working on AI for its advertising offering. One recently added tool helps advertisers better measure the return on investment from their campaigns.13
What Are the Potential Risks of Implementing AI?
Companies have invested billions in AI, but if it doesn’t generate the desired results, this spending could dry up.
It’s important to remember that, despite its recent progress, AI is relatively new and has shortcomings that need to be fixed. Problems with hallucinations (i.e., incorrect or misleading results) could slow adoption.
Many businesses are also struggling to incorporate AI into their operations and haven’t yet seen benefits to their bottom lines. One recent report suggests that 95% of organizations haven’t received any return from AI.14
The regulatory environment and public perception of AI are changing and could worsen. For example, AI-controlled pricing for airline tickets and other products might lead to consumer backlash and government scrutiny.
Finally, don’t underestimate the risk that supply chain delays and higher tariffs could increase the costs of materials and components used in new data centers. This could become another obstacle for AI.
The Argument for Mid-Caps in Artificial Intelligence
We still believe AI will remain a steady trend in the coming years, even if challenges arise.
In the near term, however, we believe it’s possible to gain exposure to AI-related growth through mid-caps. Whether companies are building data centers or creating AI-powered products, we think mid-caps may offer attractive opportunities for investors.
Authors
Portfolio Manager
Senior Client Portfolio Manager
Ready to Invest in Mid-Caps?
We believe a combination of actively managed growth and value portfolios may be advantageous in the mid-cap space.
Adam Barth, Chhavi Arora, and Gayatri Shenai, et al., “The Data Center Balance: How U.S. States Can Navigate the Opportunities and Challenges,” McKinsey & Co., August 8, 2025.
Comfort Systems USA, “Comfort Systems USA Reports Second Quarter 2025 Results,” News Release, July 24, 2025.
Vistra, “Vistra Reports Second Quarter 2025 Results,” News Release, August 7, 2025.
Vistra, Form 10-Q for the Quarterly Period Ended June 30, August 8, 2025.
Verisk Analytics, Q2 2025 Earnings Call Transcript, July 30, 2025.
Axon, Axon AI Product Page, accessed September 16, 2025.
GE HealthCare, “GE HealthCare Drives Growth with Investment in AI-Enabled Medical Devices and Tops FDA’s List of AI Authorizations for 4th Year with 100,” News Release, July 23, 2025.
Denise Heady, “AI Could Help Improve Early Detection of Breast Cancers Between Screenings, UCLA-Led Study Shows,” UCLA Newsroom, May 5, 2025.
Ekaterina Pesheva, “Does AI Help or Hurt Human Radiologists’ Performance? It Depends on the Doctor,” News & Research, Harvard Medical School, March 19, 2024.
Bhavik Sha, Chaitanya Adabala Viswa, and Delphine Zurkiya, et al., “Generative AI in the Pharmaceutical Industry: Moving from Hype to Reality,” McKinsey & Co., January 9, 2024.
Tanveer Ahmed Nasir and Thomas Haslam, “Inside Agentic AI: Reshaping Decisions and Orchestration in Life Sciences,” IQVIA Blog, February 28, 2025.
Duolingo, “Duolingo Launches 148 New Language Courses,” News Release, April 30, 2025.
Roku, Q1 2025 Shareholder Letter, May 1, 2025.
Aditya Challapally, Chris Pease, Ramesh Raskar and Pradyumna Chari, “The GenAI Divide: State of AI in Business 2025,” Project NANDA, MIT, July 2025.
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