- While the Magnificent 7 dominate AI software, a second wave of investment opportunity is emerging in the physical infrastructure and energy sectors required to power massive data center expansion
- As data center energy consumption is projected to rival the total power demand of entire nations by 2027, small-cap companies are becoming essential partners in upgrading aging electrical grids and providing critical thermal management solutions
- Analysis of Preformed Line Products (NASDAQ:PLPC), American Superconductor (NASDAQ:AMSC), and CECO Environmental (NASDAQ:CECO) reveals strong revenue growth and profitability driven by their specialized roles in grid reliability, power optimization and industrial cooling
While the Magnificent 7 are the clear winners when its comes to AI software, offering us large language models that are radically simplifying how we process information, from idea generation, to data analysis, to coding and translation, their leadership is likely already reflected in their stock prices, given their synonymity with the AI movement and darling status in the financial media.
This article is a journalistic opinion piece which has been written based on independent research. It is intended to inform investors and should not be taken as a recommendation or financial advice.
We find evidence of this in the trailing twelve month price-to-earnings ratios for Alphabet, Microsoft, Amazon, Meta and NVIDIA, which are approximately in line with the NASDAQ, their host index, hovering just under 30x, suggesting that we are dealing with fair valuations.
These mega-cap companies’ command of the spotlight, however, is obscuring how the proliferation of AI is creating a massive dislocation between the energy required to run the technology and our ability to supply it, with Morgan Stanley predicting constraints in 2027 and 2028, as data centers increase annual energy consumption by an amount equivalent to Canada’s total power demand and legacy energy grids fail to measure up to the task.
This dynamic is creating an opportunity for small-cap companies, operating in the shadows of their large-cap counterparts, to bolster primitive grid technology and solve the data center energy crisis, in turn incentivizing investors to move beyond the Magnificent 7 and participate in a second AI wave more focused on the physical infrastructure that makes it possible.
Which small-cap stocks are untangling the AI energy crisis?
It’s the logical question to ask, and the short answer is stocks tied to differentiated technology, whose value-add in terms of AI energy demand is both unquestionable and marketable, granting investors reasonable expectations of being rewarded for their high conviction.
From there, investors should make sure underlying companies are operationally efficient, ideally turning a profit or moving in that direction, with income statements speaking to sound capital allocation on the part of leadership.
Finally, value creation should rest with leadership teams that have proven themselves in similar forums before, allowing you to sleep well at night, knowing that the reins are in capable hands.
To put this thesis into practice, let’s delve into three small-cap stocks that check all these boxes, granting them strong cases as long-term investments as AI gradually embeds itself into how we interact and do business. Here they are, in order of market capitalization:
- Preformed Line Products, market cap US$1.39 billion.
- American Superconductor, market cap US$1.5 billion.
- CECO Environmental, market cap US$2.1 billion.
1. Preformed Line Products
Our first small-cap stock addressing AI energy demand is Preformed Line Products, a precision engineering specialist sought after to reinforce energy and communications infrastructure, as well as support critical industries from agriculture to elevators to industrial manufacturing with a growing portfolio of services and solutions.
Preformed, active in 20 countries, is a classic example of a boring company playing an essential role in the background of society, helping to reliably power our devices and keep us connected with loved ones.
The company’s grid transmission hardware is what binds it to the ongoing AI boom, as it’s one of the most established names when it comes to protecting power lines and communication cables, without which data centres could not function.
With the US Department of Energy estimating that more than 70 per cent of domestic power lines are more than 25 years old, a phenomenon by no means limited to the United States (see slide 10 of Preformed’s Q4 2025 investor deck), the company is confident about delivering operational growth and shareholder value over the next decade or more.
This rosy outlook would be a continuation of the company’s recent financial performance, which has seen it average more than US$600 million in annual revenue since 2022, while averaging almost US$10 in earnings per share, backed by robust demand across its core markets, not to mention a skilled leadership team captained by CEO, Dennis McKenna, who has been with the company for more than 30 years.
Preformed Line Products stock (NASDAQ:PLPC) last traded at US$301.58, adding 130.67 per cent year-over-year and 349.78 per cent since 2021, reflecting the company’s strong profitability and direct alignment with our technologically-reliant future.
2. American Superconductor
Our second small-cap stock doing its part to satiate AI energy demand is American Superconductor, whose power control systems optimize the reliability, efficiency and performance of an installed power base of 17 GW, plus 18 GW of wind power, spread across Asia, Australia, Europe and North America.
The technology company, founded in Boston in 1987, has grown into a go-to name for helping energy companies efficiently deal with fluctuating demand, precision delivery, AC/DC conversion, grid integration and emissions control, granting it a front-row seat to the AI and data center boom and the global push towards decarbonization.
From a financial perspective, American Superconductor’s market penetration has translated into more than 100 per cent revenue growth from US$108.4 million in fiscal 2021 to US$222.8 million in fiscal 2024, while elevating earnings per share from a US$0.71 loss to a US$0.16 gain, proving the company to be tapped into its target markets.
Behind this value creation, American Superconductor benefits from a long-tenured leadership team, including president and CEO, Daniel P. McGahn, who has been with the company since 2006, plus a board of directors whose expertise spanning insurance, cybersecurity and utilities equips it well to right-size growth initiatives and solve problems as they arise.
American Superconductor stock (NASDAQ:AMSC) last traded at US$33.88, adding 111.72 per cent year-over-year and 82.03 per cent since 2021, outperforming the NASDAQ over both periods.
3. CECO Environmental
Our third and final small-cap stock lessening the load of AI energy demand is CECO Environmental, an industrial company incorporated in 1966 active in the global air, water and energy transition markets.
The company’s specialties include air treatment, water treatment, optimizing the energy value chain, as well as custom applications for power generation, metal and mineral processing, petrochemical processing and transport, electric vehicle and battery production, polysilicon production, battery recycling and beverage can production, offering investors broadly diversified exposure to the industrial and environmental sectors.
When it comes to AI, CECO’s noise control products and air purification systems are of particular interest, the latter boasting an installed base capable of removing more than 50 million vehicles from the road per year, highlighting the company as a key partner to keep data centers cool as AI workloads attain new levels of complexity.
CECO’s broad alignment with global decarbonization has afforded it an attractive financial profile, notching 83 per cent revenue growth from US$422.6 million in 2022 to US$774.4 million in 2025, supported by exponential earnings per share growth from US$0.50 to US$1.42, respectively, with the company growing its backlog by an impressive 47 per cent to US$793 million by the end of the year.
CECO’s profitable growth is directly tied to a leadership team that has been successful at pairing essential industry demand with reliable and effective technologies, guided by CEO, Todd Gleason, whose industrial background with the likes of Honeywell, Pentair and Faradyne Motors grants him the skills required to deliver on CECO’s mission of protecting people, the environment and industrial equipment.
CECO Environmental stock (NASDAQ:CECO) last traded at US$63.30, adding 230.55 per cent year-over-year and 671.01 per cent since 2021, with the synergistic acquisition of Thermon Group Holdings, a top heating solutions company, expected to foster value creation over the coming years.
Takeaway
With the software at the heart of AI firmly established and being advanced by multi-trillion-dollar technology companies, investors looking for more attractive upside are casting their gazes down the market cap spectrum, keen to identify companies capable of creating the physical infrastructure for AI to flourish.
And given expectations of near-term energy market tightness, it’s likely that the ultimate winners have yet to be crowned, clearing the stage for your due diligence process to narrow down the investable universe.
Join the discussion: Find out what investors are saying about these pick-and-shovel AI stocks on the Preformed Line Products Co., American Superconductor Corp. and CECO Environmental Corp. Bullboards, and make sure to explore the rest of Stockhouse’s stock forums and message boards.
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