Prediction: These Mid-Cap AI Stocks Could Outperform the “Magnificent Seven” in 2026

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The S&P 500 has seen strong gains recently, largely thanks to the performance of seven major stocks – often called the “Magnificent Seven.” In 2025, these stocks collectively rose by 23%, continuing a trend of impressive growth that saw gains of 64% in 2024 and 37% in 2023.

Let’s skip the detailed calculations. If you’d invested $10,000 in the Magnificent Seven stocks at the beginning of 2023, it would be worth around $27,700 by January 2026. This impressive growth is largely thanks to the surge in investment surrounding artificial intelligence (AI).

As artificial intelligence continues to develop, it might be smarter to invest in smaller, lesser-known companies instead of the huge tech giants. Here are two stocks that look promising right now.

AI-powered defense

Kratos Defense & Security (KTOS 5.10%) develops and builds drones, hypersonic missile systems, and other defense technology for the U.S. Department of Defense, its allies, and government contractors. They are the leading supplier of jet target drones to the U.S. military, and importantly, their core business areas are currently receiving significant investment in defense spending.

We’ve seen encouraging growth recently, especially in drone technology, with revenue up 36% compared to last year. However, this is likely just the beginning. The drone market is predicted to grow four times larger by 2032, and the Department of Defense is significantly increasing its investment in hypersonic systems – a 47% increase in just two years.

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Kratos is using advancements in AI to improve its products and deliver more value to customers, which creates significant opportunities for future growth.

A turnaround that’s making great progress

Unity Software (+2.04%) offers a software platform with artificial intelligence tools that helps video game creators build and profit from their games. It’s the leading platform in the industry, used to create over 70% of the top 1,000 mobile games.

Unity faced criticism a couple of years ago due to pricing changes, and its future looked uncertain. However, the new CEO, Matt Bromberg – who successfully helped turn around Zynga – has made significant improvements. He’s focused on developing AI tools for game development, better marketing resources for creators, and a new partnership with Epic Games.

The latest results are really positive. The company is growing revenue again, and free cash flow jumped 31% compared to the same time last year. With a strong financial position and opportunities to expand beyond gaming – they’re already making good progress in areas like the automotive industry – this company could be a great investment as it recovers and improves.

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2026-01-22 18:34