This article first appeared in the AFR on 31 March 2025
For the past two years, artificial intelligence (AI) has dominated the innovation conversation, its rapid advances and headline-grabbing breakthroughs making it the undisputed star of global markets.
From Nvidia’s soaring stock price to debates over AI models and chip supremacy, AI has captured an outsized share of investor and media attention.
But as AI continues its ascent, other transformative and disruptive innovations risk being overshadowed, despite their potential to drive profound change in sectors such as healthcare, clean energy, and robotics.
Maroun Younes, co-portfolio manager of the Fidelity Global Future Leaders Fund and Active ETF (ASX:FCAP) at Fidelity International, believes AI’s dominance has obscured the rise of the small to mid-cap companies that are quietly reshaping industries.
“A lot of people think a dozen or so mega-cap companies have a monopoly on innovation - Amazon, Apple, and the like,” he says. “But there’s a huge amount happening outside of those names.”
Despite AI’s prominence, Younes argues that disruption, by its very nature, will always come from unexpected quarters.
Healthcare is undergoing major transformations, with advancements in organ transport, diabetes management, and pharmaceutical efficiency.
“In the fund we run, we’ve got some very interesting companies revolutionising the way organs are transported from the scene of a death to a transplant centre,” Younes says. “Innovations like these are improving survival rates and patient outcomes.”
Clean energy is another frontier where mid-cap companies are making a mark.
“One Italian company we’re involved with owns the technology that allows liquefied natural gas (LNG) to be transported safely across the world,” says Younes.
“Because LNG isn’t inherently stable in liquid form, it requires a specialised internal membrane inside the tanker to hold it intact and minimise leakage. This company licences that technology to shipbuilders in Korea and China, meaning if you want to build an LNG tanker, you have to go to them.”
Meanwhile, in robotics and automation, firms are developing everything from factory-floor control systems to humanoid robots with applications in manufacturing, logistics, and healthcare.
One Japanese company produces over 100 different types of robots for industrial automation, while an American firm specialises in sensor-driven automation for industrial environments.
“And all of that is happening outside the realm of the mega-cap names,” Younes says.
The key criteria for Fidelity when evaluating mid-cap disruptors include: first-mover advantage (companies that pioneer new and exclusive technologies); strong leadership, (founder-led teams that have a high alignment of interests); financial discipline, (companies with solid and conservative balance sheets); and scalability, (companies reinvesting cash flow into high-growth opportunities).
“We look for companies solving real problems,” says Younes. “Not just ‘nice-to-have’ solutions, but innovations that fundamentally improve cost structures, efficiency, or the lives of consumers and businesses.”
For investors, concentrating on a single trend or region comes with risk and some investors look to a mix of company sizes and sectors to manage risk.
Younes points to historical market analysis dating back to 1980, which shows that portfolios built around the top 10 stocks of each decade consistently underperformed the broader market.
Today, AI stocks dominate the way Japanese stocks once did, raising questions about whether history might repeat itself.
“In 1990, seven of the top 10 global stocks were Japanese, riding the wave of Japan’s economic boom,” he says. “Investors who concentrated solely on those names suffered in the following decade. That pattern has repeated over and over.”
This view is shared by investors like Tim Scott, managing director and principal advisor Ford Scott Financial Planning, who sees mid-cap investments as a key part of long-term portfolio success.
“AI has done very well, but there are other smarter and more efficient sectors emerging that are providing strong opportunities,” says Scott.
“We are looking at global small to mid-cap managers focused on companies of a certain size and with a certain cashflow that have most likely been unloved.
Beyond AI, Younes highlights other sectors such as defence spending and supply chain shifts driven by geopolitical tensions.
The fund is closely watching for potential opportunities in defence stocks following increased military investment in Europe.
It also remains attuned to interest rate shocks that have disrupted the “goldilocks scenario” of economic growth fuelled by low interest rates and rising equity markets over the past 18 months.
While AI remains at the forefront of investment discussions, the real question is what applications will emerge from it?
The current parallels are strong between today’s AI landscape and the early internet era of the dot-com crash in 2000. At the time, investors fixated on connectivity rather than the yet-to-be-conceived social media platforms - such as Facebook and TikTok - that would ultimately dominate.
Just as investors in 2000 focused on connectivity but missed the biggest winners, today’s fixation on AI infrastructure could overlook valuable applications still to come.
“Right now, we’re looking at AI through the lens of chipmakers and foundational models,” Younes says. “But five to 10 years from now, the real disruptors may be applications that haven’t even been imagined yet.”
