US mid-cap industrial companies are emerging as key beneficiaries of renewed policy support for domestic manufacturing under President Donald Trump’s continued “America First” agenda. Measures such as targeted tax incentives, deregulation and subsidies are designed to strengthen US competitiveness, creating opportunities for nimble, mid-sized firms that can adapt quickly to growing demand for American-made goods and infrastructure solutions.
“As key beneficiaries of renewed emphasis on US competitiveness, we believe mid-caps — often nimbler and more adaptive than their larger counterparts — are uniquely positioned to capitalise on growing demand for American-made goods and infrastructure solutions in a reshoring and energy independent economic landscape,” says Dina Ting, CFA, head of global index portfolio management at Franklin Templeton.
Industrials account for nearly 22% of the US mid-cap segment, based on the S&P MidCap 400 Index, compared with about 8.5% for the S&P 500. This heavier weighting positions mid-caps to gain from an anticipated infrastructure boom. The US Congressional Budget Office projects that infrastructure investment will add US$800 billion to US$1 trillion to GDP by 2033, with significant contributions from transportation, energy and technology-related projects.
The US equity market has changed dramatically over the past decade, with big tech dominance reaching record levels. Just 155 stocks in the S&P 500 now make up 70% of its market capitalisation, down from 274 companies a decade ago. The rise of mega-cap technology firms — each of the so-called Magnificent Seven now valued above US$1 trillion — has concentrated investor attention at the top end of the market.
This concentration has left the mid-cap segment increasingly overlooked. The number of mid-cap constituents has fallen from over 620 to about 410 since 2015, creating a more selective but potentially rewarding opportunity set. Ting notes that the historical tendency for market leadership to rotate suggests “the decade-long dominance of mega-caps may not persist indefinitely”.
Performance data also supports the case for mid-caps. While they have lagged large caps year-to-date, they have consistently outperformed smaller companies over the past three, five and 10 years. From June 2000 to June 2025, mid-caps delivered annualised returns of 9.27%, ahead of small caps at 8.98% and large caps at 7.96%. They outperformed large caps 65% of the time in monthly five-year rolling periods over the same timeframe.
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Capital expenditure on artificial intelligence (AI) by large technology companies is fuelling demand that extends to mid-cap industrial and technology-adjacent firms. Companies involved in AI infrastructure, data-centre components and automation technology are positioned to benefit from this wave of investment. AI adoption among mid-sized companies has also accelerated sharply. According to RSM’s 2025 AI survey, generative AI adoption rose to 91% among middle-market firms, up from 77% in 2024. For these companies, AI is becoming a standard operational tool, enhancing efficiency and competitiveness.
Valuations further strengthen the investment case. US mid-caps are trading at a discount of nearly 31% to large caps on a price-to-earnings basis, offering an attractive entry point for investors with a longer time horizon. Ting says this valuation gap “may represent a compelling entry point into overlooked quality companies that have been overshadowed by the market’s focus on mega-cap names”.
Mid-caps also present a distinct mix of companies, including former small caps experiencing rapid growth, large caps working through temporary challenges and newly independent entities spun off from larger firms. This diversity, combined with adaptability and operational efficiency, can provide resilience in a shifting economic environment.
With supportive policy tailwinds, compelling valuations, sector strengths and growth drivers linked to both infrastructure spending and AI adoption, US mid-cap industrials stand out as a segment with potential to deliver differentiated returns in the years ahead.
