Investor enthusiasm for artificial intelligence (AI) has surged in recent years, but much of the focus has remained on a narrow group of mega-cap technology stocks. However, we believe the transformative power of AI extends far beyond those tech giants. Across the US small and mid-cap (SMID) landscape, a growing cohort of companies are harnessing AI to drive innovation, unlock efficiencies and create new market opportunities. This opens compelling opportunities for investors – often at more attractive valuations, with greater upside potential and valuable diversification.
US SMID companies offer investment opportunities across the AI value chain – including infrastructure, compute and chips, manufacturing and automation and software applications.
These firms play a critical role in enabling the infrastructure behind AI. From fibreoptic components and advanced cooling systems for data centres, to precision tools for semiconductor manufacturing and testing – these companies are supplying the essential building blocks that power AI’s rapid expansion.
nVent Electric is a critical supplier to AI data centres, delivering scalable liquid cooling solutions which enable high-performance computing environments.
Entegris enables AI by supplying the advanced materials and contamination control solutions that are essential for manufacturing next gen semiconductors.
Teradyne plays a pivotal role across the AI value chain – supporting both compute and chip validation, as well as manufacturing and automation. Its automated test equipment ensures AI chips meet performance and reliability standards. Meanwhile, its robotics division brings AI into real-world settings through AI-powered cobots and autonomous mobile robots, transforming factory floors and logistics environments with intelligent automation.
US SMID firms are not only building the infrastructure for AI – they are embedding it into their core operations, turning AI from a capability into a competitive advantage. By leveraging AI internally, they are enhancing efficiency, reducing costs and improving service delivery.
Axon Enterprise, a leader in public safety technology, is using AI to transform how law enforcement agencies manage time and resources. Its generative AI tool, Draft One, automates police report writing, saving officers hours each week and allowing them to focus more on community engagement. Axon also employs AI for real-time translation, smart video auditing, and automated licence plate recognition – streamlining workflows while preserving human oversight.
US SMID’s dual role as – both enablers and beneficiaries of AI – makes them a compelling long-term investment opportunity, and the US SMID team at Federated Hermes is actively positioned to capture this growth. It offers diversified exposure to the full AI value chain and the secular growth tailwinds of this transformative technology.
