Australian small caps to ride AI, electrification boom

Binaya Dahal

Journalist

23 June 2026

SG Hiscock’s Phillip Li says Australian small caps with exposure to long-term growth themes such as AI infrastructure, electrification and critical mineral security will continue to shape investment opportunities over the coming decade.

Li, co-portfolio manager at the $3.3 billion boutique manager, said the strong run of small-caps stocks in recent months despite persistent inflation, elevated interest rates, and uncertain market conditions suggests investors were looking beyond the possible near-term volatility.

“Despite persistent macroeconomic challenges, we are seeing investors increasingly reward high-quality businesses with strong competitive positions that are concurrently exposed to powerful long-term themes,” he said.

In AI infrastructure, Li said the investment has expanded from software developers and semiconductor manufacturers towards the physical infrastructure required to support the technology.

“Infrastructure investment platform Infratil was one of our strongest contributors, supported by growing confidence in the expansion of domestic data centre capacity required to meet rising demand from AI and cloud computing, “he said.

“Its exposure to CDC Data Centres highlights the accelerating investment required to build the digital infrastructure underpinning the AI economy.”

He added that AI build-out was also generating opportunities across a wider network of businesses, including contractors, engineers and specialist infrastructure providers.

“Recent engagement with our electrical contractor holding Southern Cross Electrical reinforced our view that the rapid expansion of AI-related infrastructure is translating into a growing pipeline of work across the electrification supply chain,” Li said.

The surge in advanced technologies has sharpened investor focus on securing reliable supplies of critical minerals as well.

Rare earths developer Viridis Mining recently advanced key milestones at its Colossus project in Brazil, which Li said reflects growing demand for alternative sources of strategic minerals, particularly heavy rare earth elements.

“As governments and industries seek to diversify supply chains and reduce reliance on traditional sources of critical minerals, projects capable of delivering new supply are becoming increasingly important,” Li said.

While inflation and interest-rate uncertainty continue to influence short-term market sentiment, Li said market volatility was creating opportunities for investors willing to look beyond immediate economic concerns.

“Our focus remains on identifying these high-quality companies where our fundamental research indicates a meaningful disconnect between current market expectations and long-term value,” he said.