Brenton Saunders on the AI-driven ASX midcap opportunity taking shape

AI is creating a new wave of investment opportunities on the ASX beyond the obvious winners. Pendal MidCap Fund portfolio manager BRENTON SAUNDERS highlights the niche midcap companies benefitting from the next phase of AI growth

• AI is opening new midcap opportunities
• Neoclouds offer scalable, lower-risk AI exposure
• Find out more about the Pendal MidCap fund

THE first wave of AI investing has centred on obvious beneficiaries such as data centre operators, semiconductor manufacturers and the contractors building the infrastructure behind them.

But a new group of specialised providers is beginning to emerge, offering investors another way to gain exposure to the theme on the ASX.

Among them are neoclouds, niche companies offering cloud computing services tailored to AI workloads.

Rather than building and owning data centres, these businesses lease capacity in existing facilities and install their own graphics processing units (GPUs) and central processing units (CPUs) to support AI computing.

They then sell that computing power to customers ranging from individual users to software developers and large enterprises.

The model is gaining credibility. US technology giant Nvidia has begun partnering with some of these smaller providers as it backs the next generation of hyperscale AI cloud solutions.

One example is Sharon AI, an Australian-founded company listed on the NASDAQ and backed by US capital. It is also considering a dual listing in Australia and has partnered with Nvidia.

Queensland-based network-as-a-service provider Megaport (ASX: MP1), meanwhile, moved into the space through its acquisition of Latitude.sh in November 2025.

Megaport said the deal combined its connectivity platform with Latitude.sh’s high-performance compute capabilities to support AI workloads globally.

Pendal MidCap Fund holds a position in Megaport.

Brenton Saunders, portfolio manager of Pendal MidCap Fund, says the neocloud model offers a less capital-intensive way to access the AI thematic than building data centres from scratch.

“You don’t carry all the construction risk or the risk of capital costs blowing out while you’re building these assets, because it takes years to build them,” he says.

“You have a much more defined return profile. These businesses can pay themselves back within two or three years.

“For me, it’s a preferable way to play the AI thematic domestically.”

AI token advantage

Another fast-growing part of the AI thematic is token usage.

Tokens are the small units of data AI systems process during training and inference, making them a useful gauge of demand for computing power.

Google, for example, says it is now processing more than 3.2 quadrillion tokens a month, up from 9.7 trillion two years ago, underscoring the pace at which AI usage is accelerating. Google CEO Sundar Pichai shared the figures at Google I/O 2026.

“Estimates for token usage continue to rise exponentially,” Saunders says.

“The number of tokens we thought we would need six months ago versus what we may require in a year or two has already increased 10 to 15 times in just six months, as corporates and consumers adopt AI more quickly.

“That leaves a very powerful backdrop for the theme.”

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Pendal MidCap Fund

Brenton Saunders, Portfolio Manager

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Why volatility requires balance

With markets still being shaped by macroeconomic and geopolitical crosscurrents, Saunders says balance is critical in periods of volatility and sector rotation.

“You don’t want to expose yourself to big directional bets tied to geopolitical events, the oil price or inflation,” he says.

“We spend a lot of time intentionally designing portfolios that won’t simply be dragged one way or another by those macro events. That becomes especially important during major market selloffs.”

For Saunders, the task is to identify the stronger companies within that backdrop through detailed, bottom-up research.

He says he is looking for businesses with sound capital structures, manageable debt levels and strong management teams focused on delivering stronger shareholder returns.

“It’s like a moth to the flame at the moment,” Saunders says, noting that investor enthusiasm has quickly shifted from areas such as gold to AI.

“AI has been rallying in the US for some time, but that momentum is now building more meaningfully in Australia.”