Nalin Yogasundram and Jonathan Bauman at American Century Investments write that 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 centres, and a significant portion of their spending is shifting to mid-size companies. In many cases, these are the contractors building the facilities – but also companies making components and connectors that live in data centres’ 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.
Expanding AI infrastructure
Data centre design and construction
Management consulting firm McKinsey & Co. forecasts that companies will spend about USD6.7 trillion on data centre infrastructure between 2025 and 2030. Nearly USD1 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. Data centres also need to be cooled 24/7, which boosts the demand for companies specialising in air conditioning and cooling. One such company, Vertiv, reported an USD8.5 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 centres rely on. They also require connectors and interconnect systems that can reliably and quickly move data between servers and entire centres. Mid-cap firms are key players in this area.
Utilities and energy suppliers
Data centres 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.
There are also opportunities for power grids and transmission. More energy plants are coming online, but the grid often lacks the capacity to handle this extra power. This may generate opportunities for design and construction firms involved in expanding or upgrading energy infrastructure. Companies that make critical machinery could also benefit.
Implementation of AI
Commercial and professional services
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.
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 analyses 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.
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 authorisations from the U.S. Food and Drug Administration for its AI-enabled tech.
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 per cent of breast cancers.
At the same time, this remains a nascent technology. One study found that using AI doesn’t always improve radiologists’ performance.
Drug development and testing
Mid-cap companies are employing AI in drug discovery and testing. AI could potentially unlock up to USD110 billion in economic value annually for the pharma and medical product industries.
IQVIA has developed agentic AI tools that aim to streamline clinical trials, which often take months just to set up. 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. 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 personalise 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.
Risks
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 per cent of organisations haven’t received any return from AI.
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 centres. This could become another obstacle for AI.
Conclusion
AI will remain a steady trend in the coming years, even if challenges arise.
In the near term, however, it is possible to gain exposure to AI-related growth through mid-caps. Whether companies are building data centres or creating AI-powered products, mid-caps may offer attractive opportunities for investors.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments’ portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
American Century Investment Management (UK) Limited is registered in England and Wales. Registered number: 06520426. Registered office: 12 Henrietta Street, 4th Floor, London, WC2E 8LH.
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