Why Smart Money Is Quietly Shifting Away From Big Tech—and Where It’s Going Instead

The S&P 500 keeps pushing into record territory, with AI giants like NVIDIA ($NVDA) and Microsoft ($MSFT) leading the charge. But beneath the surface, institutional money is shifting—rotating into underappreciated midcaps that could offer the next leg of growth without the nosebleed valuations.

We’re calling it the rise of the Magnificent Midcaps—and they’re stealing the spotlight just in time for a potentially volatile July.

Market Backdrop: Calm Before the Earnings Storm?

Wall Street is entering Q2 earnings season with high expectations—but also signs of fatigue at the top.

Key catalysts this week:

• July 5: U.S. Jobs Report – consensus is for a slowdown in hiring. A weak number could reinforce rate cut hopes.

• July 11: CPI Inflation Report – a hotter-than-expected print could delay Fed easing.

• July 30–31: FOMC Meeting – Fed Chair Jerome Powell is expected to hold rates steady, but any shift in language about September cuts will be heavily scrutinized.

As of this week, markets are pricing in a 66% chance of a rate cut in September (per CME FedWatch Tool).

Also worth noting:

• Micron ($MU) beat earnings last week and posted blowout AI chip sales—lifting sentiment across semis.

• Nike ($NKE), however, disappointed with weak China sales, reminding investors that not all global names are bulletproof.

3 Midcap Movers Gaining Momentum

1. Axon Enterprises ($AXON)

Sector: Law enforcement & defense tech
Market Cap: ~$25B
Earnings: Next report due August 5, 2025
Why Watch: Axon is becoming a one-stop shop for public safety agencies. Their AI-driven transcription tech (Axon Auto-Transcribe) and global contracts with police forces give them strong tailwinds—especially during an election year when law enforcement spending often rises.

Axon is up +30% YTD, and institutions like Vanguard and BlackRock have increased stakes in Q2.

2. TransMedics Group ($TMDX)

Sector: Biotech / organ transport
Market Cap: ~$5B
Earnings: Reported on May 1 – beat top and bottom line
Why Watch: With Medicare reimbursement expanding for organ transportation, TMDX may benefit from increased margins and scale. This company is a real AI/healthcare infrastructure play, not a hype train.

Wall Street expects +40% revenue growth YoY and EBITDA profitability by year-end.

3. Duolingo ($DUOL)

Sector: EdTech / AI personalization
Market Cap: ~$8B
Earnings: Next report due early August
Why Watch: Their integration of AI tutors and personalized learning paths is increasing user retention and boosting paid subscriber growth. The company is also testing enterprise licensing in international markets—a new revenue vertical that’s flown under the radar.

DUOL has beaten EPS estimates for the past 6 quarters—a rare streak in tech.

Missed Headlines You Shouldn’t Ignore

• ARK Invest quietly trimmed Tesla ($TSLA) in favor of smaller AI infrastructure firms like Recursion Pharmaceuticals ($RXRX) and UiPath ($PATH).

• U.S. manufacturing PMI hit a 4-month high, suggesting a possible rebound in industrial activity.

• Crude oil back above $82/barrel—energy stocks may catch a bid if geopolitical tensions rise in the Gulf.

Risks to Watch

• Q2 earnings landmines: Midcaps have less margin for error. Any weak guidance could tank a stock 10–15%.

• Fed miscommunication: If Powell sounds more hawkish at month’s end, expect a market shakeout—especially in speculative names.

• Summer liquidity: Lower volume can exaggerate price moves and stop-outs—especially for swing traders.

Bottom Line: Watch the Rotation

The mega-cap melt-up might not be over, but institutional investors are clearly diversifying. Midcap names with real growth, cash flow, and AI tailwinds are becoming the new hunting ground.

Whether you’re day trading breakouts or building positions ahead of Q3, these names deserve attention before Wall Street makes them household names.

Disclaimer:
This report is for informational and educational purposes only and does not constitute financial, investment, or trading advice. All investing involves risk, and past performance is not indicative of future results. Always do your own due diligence and consult with a licensed financial advisor before making any investment decisions.