Looking Beyond Nvidia? This Mid-Cap ETF Could Benefit from AI’s Next Growth Phase

The Invesco S&P MidCap Momentum ETF (NYSEARCA:XMMO) has quietly become one of the market’s strongest ways to invest in AI up-and-comers. While Nvidia and other mega-cap technology companies continue to dominate headlines, XMMO is up more than 12% year to date, while individual fund holdings like Sterling Infrastructure, Inc (NASDAQ:STRL | STRL Price Prediction) and MKS Inc. (NASDAQ:MKSI) are up well over 100%.

Rather than concentrating exposure in just a handful of trillion-dollar companies, the fund owns many of the mid-cap businesses supplying semiconductor equipment, industrial technologies, electronic components, and other critical infrastructure powering the next phase of AI growth.

Positioned for AI’s Next Growth Phase

XMMO currently provides exposure to many of the “picks-and-shovels” companies supplying the semiconductor equipment, networking hardware, and critical infrastructure powering the AI buildout. If current infrastructure bottlenecks persists, many of the companies currently held within XMMO could remain well positioned to benefit from the next phase of AI investment.

Unlike traditional index funds that weight companies primarily by size, XMMO tracks an index of approximately 80 mid-cap companies exhibiting the strongest price momentum within the S&P MidCap 400 Index. The result is a portfolio that naturally shifts toward businesses benefiting from improving fundamentals and strong investment demand.

Currently, holdings include several companies tied to the expanding AI ecosystem.

These holdings include companies like Sterling Infrastructure, Inc., which provides engineering and construction services supporting data centers and other large-scale infrastructure projects, and MKS Inc., which supplies critical semiconductor manufacturing equipment and photonics technologies used in advanced chip production.

Other notable holdings include Fabrinet (NYSE: FN), a manufacturer of optical networking equipment for AI data centers, MACOM Technology Solutions (NASDAQ: MTSI), which develops high-performance networking and radio-frequency semiconductors, and TTM Technologies (NASDAQ: TTMI), a leading producer of advanced printed circuit boards used in AI servers and networking hardware.

Over the past year, STRL is up 162.56% on a total return basis, whereas MKSI is up a massive 215.48%.

The Investment Trend Behind XMMO: AI Capital Spending

Although artificial intelligence remains the primary investment theme behind many of XMMO’s technology holdings, investors should also remember that the ETF is not purely a technology fund. While technology currently makes up 14% of holdings, industrials actually account for about 40% of the portfolio.

This can be viewed as a positive, as it gives the fund exposure to companies benefiting from broader capital investment trends alongside AI infrastructure spending.

This distinction is important because the companies building semiconductor manufacturing equipment, electrical infrastructure, and specialized industrial components often benefit from the same wave of investment driving AI data center construction. As hyperscalers and enterprises continue expanding their AI capabilities, spending increasingly flows beyond chip designers into the manufacturers supplying the equipment and infrastructure needed to support growth.

Fund Specific Factors: XMMO’s Momentum Strategy

Unlike traditional mid-cap index funds, XMMO’s momentum-based methodology is designed to evolve alongside changing market leadership.

By selecting approximately 80 companies within the S&P MidCap 400 exhibiting the strongest relative price momentum, the fund systematically increases exposure to businesses with improving investor sentiment while removing those whose momentum begins to weaken.

This flexibility may prove particularly valuable as the AI investment cycle continues to evolve.  As leadership shifts throughout the broader AI ecosystem, XMMO’s rules-based approach is designed to adapt without requiring investors to predict which companies will emerge as the next market winners.

With an expense ratio of 0.61%, and attractive growth metrics that outperform index and category averages (historical earnings growth of 8.63%), XMMO proves to be an attractive, cost-effective way to gain exposure to the market’s potential next leaders.

What to Watch

Despite recent market pull-backs, if AI infrastructure investment remains strong, XMMO appears well positioned to benefit from continued demand across the medium sized “picks-and-shovels” companies supporting AI growth. Going forward, Investors should monitor hyperscaler capital spending and the fund’s quarterly holdings updates, as both can provide valuable insight into where the next phase of future AI leadership might emerge.

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