Small-cap stocks are drawing renewed attention from T. Rowe Price as the firm’s 2026 midyear outlook signals a broad shift in market leadership away from the largest technology companies.
Key Takeaways:
- Mega-cap tech economics are shifting as AI infrastructure spending pressures free cash flow and return profiles.
- Small-cap and value stocks outperformed year-to-date as earnings growth spread beyond mega-cap names.
- TMSL returned 20.1% year-to-date while TACU applies active selection across 550 to 650 large-cap holdings.
According to T. Rowe Price’s 2026 Midyear Market Outlook, the decade-long playbook of simply owning the benchmark’s largest companies is losing ground. Massive AI spending is changing the economics of mega-cap technology companies, pressuring free cash flow and altering return profiles.
That shift creates room for active managers who can separate companies converting capital spending into durable earnings from those whose spending dilutes returns.
Markets absorbed a difficult first half, including the Iran war, rising energy costs, sticky inflation, and supply chain disruptions, the report noted. Risk assets held up, backed by strong U.S. earnings and growth, but T. Rowe Price cautioned that investors risk mistaking resilience for calm.
Central to the firm’s outlook is a change in where AI dollars are landing. Rather than flowing mainly to a handful of large platform companies, spending is now moving into power, data center infrastructure, electrical equipment, and cooling systems.
In that context, AI has become less a technology story and more a broad industrial investment cycle.
Small-Cap Stocks Gain as AI Dollars Spread Wider
Small-cap and value stocks outperformed year-to-date through May 29, even as AI-related companies remained key return drivers, the report noted. Small-caps offer more upside potential as earnings growth continues to spread.
Two T. Rowe Price ETFs offer investors different ways to act on that shift.
The T. Rowe Price Active Core U.S. Equity ETF (TACU) addresses concentration risk at the large-cap level. Built with between 550 and 650 holdings, TACU uses a combination of quantitative models and fundamental research to identify companies successfully converting AI investment into stronger returns, according to T. Rowe Price.
TACU launched in December 2025, holds $14.2 million in assets, and has returned 10.2% year-to-date, per ETF Database.
Designed for investors looking further down the market-cap scale, the T. Rowe Price Small-Mid Cap ETF (TMSL ) targets companies with improving earnings, strong free cash flow, and attractive valuations, according to T. Rowe Price.
TMSL connects to the report’s argument that AI spending flowing into physical infrastructure is creating earnings momentum beyond the mega-cap index. Launched in June 2023 and recently crossing its 3-year anniversary milestone, TMSL holds $2.43 billion in assets and has returned 20.1% year-to-date, per ETF Database.
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