After a long mega-cap tech-dominated leadership, the market has entered 2026 on less stable ground.  SP 500 (NYSE:SPY) is breakeven for the year, while the Magnificent 7 stocks average 7.3% negative return.

With tech giants pouring tens of billions into AI models, chips, and data centers, investors are starting to wonder whether the disruptors themselves are now exposed to a different kind of disruption: margin compression driven by relentless capital spending.

Small-Cap Opportunity

That skepticism is one reason capital is rotating into smaller companies, particularly those positioned as enablers of the AI build-out rather than the headline developers. Franklin Templeton argues that the opportunity may lie with suppliers and adopters rather than the megacap leaders.

"During the gold rush, it's a good time to be in the pick and shovel business," the firm said in a recent report.

Its small-cap teams are focusing on companies that produce semiconductor components, power infrastructure, and engineering services tied to data-center expansion. Many of these firms have already been benefiting from the spending wave, yet still trade at relatively modest valuations compared with the largest tech names.

AI-Resilient Group

Even within large-cap software, however, not everyone is convinced that AI will wipe out incumbents. JPMorgan argues that the recent selloff has been too indiscriminate and has created opportunities in what it calls "AI-resilient" names.

In a recent note, the bank's strategist, quoting a positioning flush and overly bearish outlook, argued that "the balance of risks is increasingly skewed towards a rebound."