AI bullishness is soaring, but pros see a major opportunity brewing in an overlooked corner of the market
With stock indexes notching record highs and meme stocks keeping retail traders on their toes, it's easy to get swept up by the animal spirits these days.
Big tech leaders reported strong Q2 earnings in the last week, indicating that demand for artificial intelligence isn't slowing down. This has sparked even more bullishness from Wall Street as analysts raise their price targets on both old favorites and news.
However, there are still opportunities in the less loved corners of the market, and some investors say they're turning to smaller stocks that look poised to gain.
Big opportunities, small market caps
The small-cap Russell 2000 may have struggled in 2025, but for investors willing to to their due diligence, there's an opportunity brewing in small- and mid-cap stocks.
"Smaller caps are historically undervalued," Alexander Wah, founder and chief investment officer of Prince Capital, told Business Insider.
Wah highlighted the importance of the Russell 2000, which he described as being frequently passed over by investors.
"There's a lot of [companies ]that are being overlooked, that are quietly, quietly chipping away at larger industries, making their names known," he said.
He highlighted Sterling Infrastructure, a little-known company that provides AI infrastructure solutions that stood out to him as an effective play on the AI boom.
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Brandon Nelson, senior portfolio manager at Calamos Investments, also highlighted Sterling it as a small-cap stock play on the AI trade.
"AI-enabling infrastructure is a big theme," he said. Several small and mid-caps are exposed; anything in the data center building food chain should benefit."
He named Sterling, Lumentum Holdings, and Argan as examples. All three stocks, which trade in the small-mid cap range, have demonstrated strong growth and are up substantially year-to-date. Wah noted that Sterling has risen roughly 4x since his fund's initial investment, which it maintains.
A potential small-cap tailwind from Capitol Hill
Certain small-cap names may also be poised to benefit from a policy shift.
"Small caps tend to benefit from strong merger and acquisitions markets, as many small-cap companies are potential acquisition targets for larger firms," Joe Alger, investment research analyst at Crestwood Advisors, told BI. "The Trump administration is expected to be significantly less regulatory toward the M&A market."
While Alger noted that M&A has slowed in recent years, he predicted that it could see a resurgence when investors have more clarity on tariffs, which he described as a likely tailwind for small-cap stocks.
"I think that the smaller cap index is the most undervalued in comparison to the large type index that I've ever seen," Wah said. "This is great because it means that there is a lot of opportunity to find things that others are overlooking."
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