If you're exhausted from squeezing out marginal gains in chip behemoths like NVIDIA Corp. (NVDA), Broadcom Inc. (AVGO), and Advanced Micro Devices Inc. (AMD), there might be a smarter play hiding in plain sight. A handful of smaller semiconductor companies are setting up for what could be a serious run in 2026, and they're not getting nearly the attention they deserve.
These aren't your typical speculative plays. We're talking about companies with real market positions, backed by three powerful trends: relentless AI infrastructure spending, the increasing complexity of chip manufacturing, and a resurgence in aerospace and defense budgets. In other words, the same forces lifting the giants, but with more room to run.
Bank of America semiconductor analyst Vivek Arya highlighted five small and mid-cap semiconductor names in a Thursday note that look positioned to capitalize on a potential market rotation. Investors are starting to hunt for under-owned stocks with above-average growth prospects, and these names fit the bill perfectly.
Credo Technology: Connecting The AI Revolution
Credo Technology Group Holding Ltd (CRDO) isn't just growing fast—it's dominating a crucial niche in AI infrastructure. The company owns roughly 75% of the active electrical cable market, which might sound boring until you realize these cables are essential for connecting AI servers together.
Here's where it gets interesting: Bank of America projects this market will explode from about $1.2 billion this year to more than $7 billion by 2030. Credo sits right in the middle of that growth trajectory and could eventually generate $4 billion to $5 billion in annual revenue long term.
At that scale, the firm sees earnings power exceeding $10 per share and approximately 44% upside to its $200 price objective. That's not incremental—that's a real opportunity.
"We believe consensus likely underappreciates the durability of copper in data centers with its lower power and proven operational benefits," Arya noted.
The market is clearly catching on. Credo shares surged 114% last year alone, following a spectacular 245% gain in 2024.
MKS Instruments: Riding The Equipment Wave
MKS Inc. (MKSI) is benefiting from a multiyear upswing in wafer fabrication equipment spending and the growing demand for sophisticated chip packaging techniques.
The company recently raised its fourth-quarter revenue guidance to $1.03 billion and increased EBITDA expectations by 6% to $248 million. Those aren't small adjustments—they signal genuine momentum in the business.
What makes MKSI particularly compelling is its exposure to advanced packaging, especially the increasing complexity of printed circuit boards driven by AI applications. Add in strong bookings and recurring high-margin chemistry sales, and you've got multiple growth engines firing simultaneously.
Bank of America boosted its price target from $215 to $255, forecasting 8% revenue growth and 15% EPS growth through 2027.
Advanced Energy Industries: The AI Power Story Nobody's Watching
Advanced Energy Industries Inc. (AEIS) offers something particularly valuable: dual exposure to both AI-driven data center power requirements and the recovery in semiconductor equipment spending.
Bank of America projects 11% revenue growth and 19% EPS growth through 2027, lifting its price objective from $260 to $300. But here's the kicker—management is guiding for 25% to 30% data center growth in 2026, while the broader market expects 35% cloud capex growth. If AEIS is being conservative (and they might be), there's meaningful upside to those estimates.
Gross margins are climbing toward 40%, and additional gains could come from new customer acquisitions and a rebound in industrial markets.
Teradyne: Testing Gets Complex
Teradyne Inc. (TER) stands to win as testing requirements for AI chips grow faster than chip shipments themselves. It's a counterintuitive insight, but it makes perfect sense when you think about it.
From high-bandwidth memory to system-on-chip designs, rising complexity means chips need more rigorous, intensive testing before they ship. That's Teradyne's specialty.
Arya expects 20% revenue growth and 39% EPS growth through 2027, seeing 12% upside from his raised $260 price target.
"Robotics and systems-level test upside could be underappreciated," Arya said.
There's also an interesting side angle: Teradyne has growing exposure to warehouse robotics upgrades, particularly through its relationship with Amazon's automation initiatives.
MACOM Technology Solutions: Defense Meets Data Centers
MACOM Technology Solutions Holdings Inc. (MTSI) brings something different to the table. According to Bank of America, the company offers a "diverse connectivity portfolio levered to defense/aerospace tailwinds."
MACOM blends long-term data center growth with robust aerospace and defense momentum. Its data center segment grew 48% in 2025, and recent wins in 200G photodetectors position MTSI as a key player in the coming 1.6T network transition.
Arya forecasts 15% revenue growth and 22% EPS growth through 2027, with 15% upside to his $260 price objective.
The defense angle is particularly compelling right now. Defense contracts and satellite communications programs—especially following the FCC's approval for 7,500 new Starlink satellites—could provide additional growth catalysts.
"MTSI sees continued strength and visibility with defense exposure becoming an attractive growth lever via share gains in microwave and optical RF and durable budget/program expansions," Arya said.
Look, nobody's suggesting you abandon the chip giants entirely. But if you're hunting for asymmetric upside in semiconductors—where the potential gains justify the risks—these five names deserve serious consideration. They're not flying under the radar because they're broken. They're overlooked because everyone's still fixated on the obvious plays.
