Five Hidden Stocks Betting on AI’s Next Phase Ahead

Big Budget Push for AI and Drones Signals a Broader AI Era

The U.S. defense budget landscape is shifting toward AI-enabled systems, drones, and the sensors that power them. The Pentagon’s latest budget request for FY2027 earmarks substantial funding for drone dominance and counter-drone technologies, underscoring a durable shift in government demand for advanced hardware, software, and services. That backdrop is drawing money not just to the publicized chip rivals, but to the broader ecosystem that turns compute into real-world capability.

Investors are eyeing the AI supply chain beyond headline chips. As one market observer put it, the rally around AMD has been intense enough to spawn a common wrestling chant in analyst rooms: "150% this year here." In other words, the real upside might lie with the companies that build the tools, packaging, and platforms that let AI power advance across pharma, defense, and industrial AI.

Against that backdrop, five overlooked stocks are quietly expanding exposure to AI compute, advanced materials, and defense tech. Each one sits outside the flashy chip craze but stands to benefit as orders, technology cycles, and enterprise demand shift higher.

Five Overlooked Stocks Betting On What Comes Next

• Schrodinger (SDGR) — A software platform marrying physics-based simulations with AI/ML to accelerate drug discovery and materials research. The approach targets enterprise customers who need reliable, ground-truth models rather than consumer-grade data to train AI systems.

  Near-term catalysts include the expansion of its AI-enabled workflows and collaborations with big pharma, which could accelerate contract wins even as the broader AI narrative cools in public markets.

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  • Q1 2026 revenue: about $68 million, with drug discovery revenue rising materially year over year
  • ACV guidance for 2026: roughly $240 million to $260 million
  • Potential upside: a major pharmaceutical partner could expand use of the platform, triggering a re-rate on the stock
• nLIGHT (LASR) — Produces high-power semiconductor and fiber lasers used in manufacturing, defense, and industrial sectors where laser precision drives efficiency and productivity.

  Demand trends point to longer-order visibility as manufacturers pursue higher automation and precision tooling. The defense angle, with laser systems part of targeting, sensing, and countermeasure frameworks, adds a durable bid under the stock.

  • Q1 2026 revenue: mid-teens percentage growth year over year
  • Backlog: solid multi-quarter visibility across key programs
  • Market takeaway: laser-enabled automation could become more essential as AI-driven manufacturing expands
• IPG Photonics (IPGP) — A leading supplier of fiber lasers and laser systems, IPG serves industrial, medical, and defense markets and is a critical enabler of modern manufacturing and materials processing.

  The company’ s laser platforms are widely used in laser-assisted fabrication, additive manufacturing, and precision cutting, all of which are expanding as factories adopt higher automation and AI-guided workflows.

  • Q1 2026 revenue: notable growth with improving mix toward higher-margin systems
  • Gross margin: in the low-to-mid 30s percentage range
  • Opportunity: expanding applications in 3D printing and defense production lines
• II-VI Incorporated (IIVI) — A photonics and engineered materials group supplying optical components, precision optics, and laser assemblies that power AI compute infrastructure and high-end manufacturing.

  As AI workloads continue to scale in data centers and edge environments, II-VI’s components help improve efficiency and performance in servers, sensors, and specialized tooling used by defense contractors.

  • Q1 2026 revenue: steady growth with a mix shift toward higher-value photonics
  • Backlog: stable, with several large programs in the optics and defense segments
  • Risk: cyclical demand for industrial optics could temper near-term results
• Qorvo (QRVO) — A leading provider of RF solutions and front-end modules for wireless networks, satellite, and defense communications. As 5G expands and defense comms modernize, RF components stay in high demand.

  Qorvo sits at the intersection of civilian networks and defense-critical communications, with a portfolio that can benefit from AI-accelerated design cycles and more capable sensors on the battlefield.

  • Q1 2026 revenue: growth supported by 5G infrastructure and aerospace programs
  • RF segment margin: improving as product mix shifts toward higher-margin components
  • Catalyst: potential defense awards for advanced RF modules could lift sentiment

What To Watch For In The AI-Driven Cycle

These five names highlight a broader theme: the AI wave is becoming more than a few marquee chipmakers. The next phase depends on software platforms, laser-enabled manufacturing, photonics, and RF systems that can scale AI workloads, improve energy efficiency, and support defense programs. A sustained bid in these areas could help moderate risk for investors who want exposure to AI growth without riding every tech stock’s volatility.

Analysts caution that the macro backdrop matters. A stronger capex cycle in data centers, more multi-year defense contracts, and clearer supply chains for critical materials would all help lift these overlooked names. On the other hand, a slowdown in enterprise IT spend or a sharp tightening of funding could pressure margins and revenue visibility.

One portfolio manager at a mid-sized firm, who asked not to be named, summarized the thesis: “The AI wave is broadening from chips to the build-out of the ecosystems that run those systems. The companies here are the shovels, cables, and machines that turn AI ambition into real-world capability.”

Risk and Reward: How to Think About These Bets

• Time horizon: Longer durations help absorb quarterly volatility tied to defense budgets and enterprise capex cycles.
• Volatility vs. exposure: These are not pure AI plays; they’re more dialed into the infrastructure that AI requires, which can cushion downside during hype cycles.
• Valuation discipline: Look for durable revenue streams and backlog visibility rather than one-off contract wins.

Bottom Line

AMD’s blistering rally has spotlighted AI’s potential, but the real opportunity for investors may lie with the five overlooked stocks that power the AI infrastructure. The Pentagon’s commitment to drone tech and counter-drone systems reinforces a future in which hardware, optics, and RF components become as crucial as the chips themselves. For investors seeking exposure to AI’s next phase, these names offer a blend of growth, secular demand, and defense-related tailwinds that could deliver meaningful upside as the year progresses.