The market is expensive. But expensive is not the same as irrational. For investors willing to look beyond the mega-cap names, this environment may create attractive opportunities in smaller companies. I like Arista Networks Inc. (ANET) and Vertiv Holdings Co. (VRT), writes Nicholas Vardy, editor of The Global Guru.
Large-cap AI leaders are already well owned. The bigger asymmetry may be in smaller companies that help the giants build, power, automate, cool, secure, or optimize the AI economy.
ANET, VRT (YTD % Change)
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That could include niche semiconductor suppliers, data-center component companies, power equipment manufacturers, specialty industrials, automation software firms, or cybersecurity providers. ANET and VRT are examples in the broader ecosystem.
Some have already moved dramatically. But they illustrate the type of business model investors should study. The key is operating leverage. When a smaller company has fixed costs, rising demand, and pricing power, incremental revenue can produce explosive earnings growth.
That is where margin expansion becomes rocket fuel. But the same warning applies. Do not buy the label. Buy the economics. “AI-adjacent” is not enough. The company must show real demand, real customers, real gross margin strength, and preferably real free cash flow.
