How AI is Shaping the Small-Cap Space

While mega-cap technology has dominated the AI story, the next set of winners may be forming in small caps. We see opportunity in the picks-and-shovels layer, especially semiconductor equipment and memory-related businesses that help build and scale AI chips.

AI is also creating new revenue streams for software and infrastructure firms, particularly those offering model security, governance, and predictive analytics. In industrials and defense, rising demand for power, cooling, space-based intelligence, and advanced data systems is opening up durable growth areas.

Biotech stands to benefit as high-performance computing becomes central to drug discovery and clinical development. The main risks remain volatility, uneven adoption across the stack, and sector-specific execution challenges.

In our view, alpha will come from selective investing in de-risked companies with clear catalysts. That makes a disciplined bottom-up process especially important as these emerging leaders begin to separate from the broader market.