Big Opportunities in Small Cap Equities

Small-cap stocks currently trade at a 25-30% discount relative to large-caps, positioning the sector for a robust earnings cycle driven by anticipated interest rate relief, increased M&A activity, and a revitalizing IPO market. While mega-cap tech dominates broader market sentiment, significant opportunities exist within the "picks and shovels" of AI infrastructure, particularly in semiconductor equipment and optical connectivity. Furthermore, the defense and biotechnology sectors show renewed innovation, benefiting from domestic manufacturing trends. Despite lingering concerns regarding consumer health and energy costs, the underlying economy remains more resilient than expected. Greg Tuorto, Head of the Small and Smidcap team at Goldman Sachs Asset Management, notes that these fundamental tailwinds, combined with a multi-year period of stagnant inflows, create a compelling environment for investors to rotate back into the small-cap space.