Everyone knows AI sent chip makers to record highs.
What most people don't know is that behind every data center running AI, there's a massive infrastructure problem that needs solving.
In 2024 and 2025, AI sent Nvidia and other chip makers to record highs in a tech boom that Wall Street hasn't experienced in years.
But behind the scenes, AI, data centers, crypto, and other tech are all fueled by one thing: electricity.
Data centers and Bitcoin mines require gigawatt-scale power connections.
That's roughly the same amount of electricity a medium-sized city uses.
The problem? The U.S. electrical grid simply can't keep up with this demand.
Many of the small-cap companies powering these larger innovations lagged behind the tech giants in 2025. But that could change in 2026.
Demand for crypto and AI continues to rise, meaning these small-cap electrification businesses could see bigger profits soon.
This mismatch is creating a bottleneck in electrical infrastructure, leading to opportunities for small industrial companies that build the physical pieces of our power grid.
Let’s break down where the opportunities might be, the risks, and what this all means for investors.
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Why This Matters for Small Cap Stocks
While the S&P 500 trades at around 22 times earnings as of January 2026, many small cap stocks in the infrastructure space trade at only 10 to 15 times forward earnings.
That's a significant valuation gap, even as these companies' order books fill with AI-related projects.
Every data center needs three critical components:
- Power lines to connect to the grid.
- Cooling systems to prevent overheating.
- Conduit and cables to wire everything together.
The companies providing these basic building blocks have been largely overlooked by the market as of now.
But they're about to become essential.
While tech giants like Nvidia were in the AI spotlight, the real work was happening behind the scenes.
That includes small cap stocks like grid builders, who are working on updating and maintaining our power grid for data centers and beyond.
The Hidden Power Play
When a company like Google or Amazon wants to build a massive new data center, they face an immediate problem.
Google and Amazon are known as hyperscalers, and these hyperscalers are investing billions into power solutions for our grid.
However, the existing power grid often can't handle the needed power. AI data centers can require gigawatt-scale power connections - about the same as what a medium-sized city uses.
High-voltage lines, substations, connections, and more need to be physically built in order to make sure power goes where it needs to.
This isn't something that can be solved with software or clever algorithms. It requires actual construction, skilled labor, and specialized equipment.
This is where some of the most interesting small cap stocks come into play.
Companies like MYR Group, one of the largest independent electrical contractors in the United States, specialize in the dangerous, highly skilled work of installing high-voltage transmission lines and building electrical substations.
Think of them as the construction crew that connects the power plant to the data center.
MYR has been around for years, but the AI boom has transformed its business.
Their Commercial & Industrial segment, which handles data center work, has gone from a normal construction business to a mission-critical service.
Without MYR's work, those AI chips can't even turn on.
The bottom line: It’s a small cap stock, so it has the potential to grow as this market shift develops.
The Timing Factor
There's another element that could help these small cap stocks in 2026: interest rates.
As the Federal Reserve continues to lower rates, these infrastructure companies could see their borrowing costs drop. Lower borrowing costs mean increased profit margins.
For capital-intensive businesses like electrical contractors and manufacturers, this matters a lot.
Plus, many of these companies spent 2024 and 2025 working through contracts signed before prices went up.
These projects take years to complete, which meant lower profit margins on older work.
Throughout 2024 and 2025, companies worked through contracts that were signed before prices went up.
These projects take years to complete, so companies sign deals at today's prices, despite costs rising over time. That meant lower profit margins on those older projects.
But as of late 2025, most of those lower-margin contracts are finished. New projects are being priced much higher, with better terms.
MYR Group, for example, expects its profit margins to expand to between 5% and 7.5% in 2026, driven by high-demand data center work.
At the same time, MYR has a near-record backlog of about $2.66 billion worth of projects already lined up.
Even with impressive recent performance - shares of MYR are up 48% in the last year and 277% over the last five years - the benefits of data center construction may not be fully reflected in the stock price yet.
The Cooling Challenge
Cooling systems and also a critical part of data centers and AI that needs to be solved.
Without proper cooling, data centers can't work, which means no AI or cloud computing.
Traditional air conditioning won't work either.
As a result, data centers are increasingly turning to liquid cooling systems to keep their equipment from melting down.
This creates an opportunity for companies that know how to build cooling systems at scale.
Think of these cooling units like industrial-strength radiators for computers - they pump cold liquid through the equipment to pull heat away.
Modine Manufacturing is one example of a company capitalizing on this trend.
For decades, Modine was known as a boring, but essential, auto parts supplier, making radiators for trucks.
But the company saw the shift coming years ago and made a big bet on data centers.
Modine aggressively moved its manufacturing capacity away from auto parts and toward what it calls "Climate Solutions."
While it still makes auto parts, it is now one of few U.S. firms that can mass-produce the specialized cooling units required for next-generation AI server racks.
The challenge for Modine hasn't been finding customers - it's been making enough cooling units to meet demand.
To solve this, Modine opened new manufacturing facilities in the United States, the United Kingdom, and India specifically for data center products in late 2025.
These new plants are expected to reach full capacity in early 2026.
As a result, management projects that data center revenue could grow by more than 60% in fiscal 2026.
Shares of Modine are up over 1,000% in the last five years, with an additional 17% gain in 2025.
That kind of massive growth reflects the company's transformation from an auto supplier to a tech infrastructure provider, and how investors now value the stock.
What Makes These Small Cap Stocks Different
Unlike the tech giants that dominated headlines, these small cap stocks operate in unsexy industries.
They're the grid builders connecting power plants to data centers.
They're the manufacturers making industrial-strength cooling units.
They're the suppliers providing electrical conduit and armored cables.
But many of them they have near-record backlogs of work already lined up.
There are also data center opportunities that are almost invisible.
Not literally, but there are things behind walls and under floors in every building in America that you never see.
Think electrical conduit - the pipes that wires run through - along with armored cables and metal framing.
These are essential for all buildings, but particularly for data centers. And as demand for data centers grows, so does the need for these building blocks of infrastructure.
Companies like Atkore Inc. specialize in electrical conduits, armored cables, and steel framing.
Whether it's a chip factory in Arizona, a data center in Ohio, or a solar farm in Texas, they all require miles of Atkore's products.
These are established companies with real revenue, real customers, and growing demand for their services - but being a small cap stock, there may be some potential for growth.
The Valuation Opportunity
The valuation disconnect between these small cap stocks and large-cap tech companies creates potential opportunity.
Auto parts companies typically trade at a price-to-earnings ratio around 8. Industrial tech suppliers commonly trade at ratios above 20.
Some of these infrastructure companies are making the transition from boring industrial suppliers to tech infrastructure providers.
As the market recognizes this shift, valuations could expand.
Unlike the big tech companies that trade at premium valuations, these small industrial firms are trading at discounts right now.
That disconnect may present an opportunity for patient investors who understand that the AI boom needs a lot more than just computer chips.
The transformation can be dramatic. Take Modine Manufacturing again.
The company's shift from auto parts to tech infrastructure completely changed how the market values it.
What was once a cyclical auto supplier now commands attention as a critical piece of AI infrastructure.
This kind of revaluation doesn't happen overnight. But for small cap stocks with dominant market positions and growing order books, the potential is there.
Understanding the Risks
No investment opportunity comes without risks. These small cap stocks face several challenges that investors need to understand.
Fixed-price contracts can hurt profits if costs rise faster than expected. For grid builders, the biggest risk is what's called the "fixed-price trap."
These companies often sign long-term contracts at a set price.
If costs go up due to inflation - whether wages, materials, or land - those fixed prices lower profits as costs rise.
MYR is working to increase margins after the value of their services went up in recent years, but those old contracts locked them into lower prices.
The next batch of contracts could face similar issues if inflation runs high again or if the value of their services continues to increase.
Execution risk matters too. For cooling system makers like Modine, the risk is execution.
Modine's bottleneck has been manufacturing capacity, and the company made significant investments to scale up production.
But there's no guarantee that it will keep up with data center demand. If it runs into delays, that will hurt its business and may affect its share price as well.
Commodity price volatility affects companies that use steel, PVC plastic, and other materials. For conduit makers like Atkore, the risk is commodity prices.
Conduit manufacturers had high profit margins between 2022 and 2024 because material shortages gave them pricing power.
These infrastructure makers could take a hit if prices go lower, instead of rising. That could happen if a global recession hits, which would complicate profits for these infrastructure makers.
AI demand slowdown is a risk that affects all three types of companies.
There's one risk that affects all of them: AI demand or data center growth could slow down.
While unlikely, a slowdown is always possible, and could lead to fewer profits for tech companies and these infrastructure builders as well.
Plus, if new forms of energy are discovered, making energy efficiency more attainable, profits for these firms could be limited.
That doesn't appear to be the case in the short term, though - but all of these risks should be on investors' minds nonetheless.
Some potential risks include miscalculations of costs related to labor and materials, or worker strikes that may create issues with project backlogs.
What This Means for Investors
The AI boom needs more than computer chips. It needs a complete overhaul of electrical infrastructure. That overhaul could take years and require billions in spending.
The small cap stocks building this infrastructure trade at discounts compared to tech giants.
They have real revenue, growing backlogs, and potential margin expansion as older contracts roll off and new ones price in today's higher costs.
As interest rates potentially come down in 2026 and these companies work through their backlogs, they may see both earnings growth and valuation expansion.
Simply put: The AI revolution can't happen without a massive upgrade to our physical infrastructure.
And the small cap companies building that infrastructure may be worth keeping an eye on in the years ahead.
Blockbuster names like Nvidia have been born out of the AI revolution. But the real work of building AI infrastructure happens in places most people never see.
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