Amid a more than six-month consolidation among major AI infrastructure players like Nvidia (NVDA) and Broadcom, leadership within the broader ecosystem has begun to rotate toward smaller, specialized suppliers as infrastructure needs evlove. One standout example has been Lumentum (LITE), which has emerged as a major winner during this period, leading the industry in optical networking technology, a critical solution for the high-speed data transmission required by AI compute and data center workloads.
Lumentum shares have surged several hundred percent over the past several months, and while I’m not one to shy away from momentum stocks, as readers know from when I highlighted LITE here, I’m now focused on identifying similar early stage setups across the AI infrastructure landscape. One name that stands out is RF Industries (RFIL).
While RF Industries may not address a bottleneck as central as optical networking, the company recently delivered a breakout earnings report showing strong growth in new business segments, including aerospace and AI data center connectivity and cooling solutions. The stock responded with a massive gap higher and has since been forming a clear consolidation pattern. With a Zacks Rank #1 (Strong Buy), a still reasonable valuation, and a potentially significant growth runway as it expands into AI markets, the setup suggests a breakout and sustained upside move could be developing.
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RF Industries Shares Jump on AI Opportunities
RF Industries’ recent surge is being driven by the fact that the business may be entering a new growth phase as it pivots from a commodity-like component vendor to a higher-value technology solutions provider. On the company’s latestearnings call CEO Rob Dawson framed the core story as the difference between being “a solutions provider with technologically advanced products and systems” versus their historical position as a downstream component supplier, and said FY2025 “felt like a breakout year” as that transformation began showing up in both revenue growth and profitability.
That shift matters for the AI buildout because data centers don’t just need more chips, they need more power, cooling, and reliable connectivity. RFIL is increasingly positioning its offerings as “designed-in” solutions tied to larger projects, rather than swappable parts sold on price. The early proof point is the recent financial results, as Q4 revenue climbed to $22.7 million, a 23% YoY gain and gross margin expanded to 37%, evidence of improving operating leverage.
The most direct AI-adjacent opportunity is thermal management. RF Industries markets “Direct Air Cooling (DAC)” systems as a way to materially reduce cooling power consumption versus traditional HVAC, which has become an increasingly important requirement as data center energy intensity climbs. The company states its DAC solutions can reduce cooling electricity by “over 75%” compared with HVAC, which helps explain why investors are paying attention.
Put simply, if RFIL continues moving up the stack from connectors and cables into integrated cooling and connectivity solutions tied to data center deployments, the AI buildout becomes a meaningful incremental driver of the top line, with a better margin profile than the legacy component business.
Where RFI Stock Stands Ahead of NVDA Earnings
The broader AI infrastructure trade continues to evolve. While mega-cap leaders like Nvidia remain the central drivers of the theme, with its earnings report this afternoon likely to set the tone for the entire sector, recent market action suggests investors are also increasingly searching for the next layer of beneficiaries further down the supply chain.
We’ve already seen how that dynamic can play out with Lumentum, which transformed from a lesser-followed optical supplier into one of the biggest winners in the AI infrastructure ecosystem as demand for high-speed data transmission surged. RF Industries could represent a version of that same pattern. As the company shifts toward higher-value connectivity and cooling solutions tied directly to data center expansion, even modest contract wins in these markets could have an outsized impact on revenue growth and profitability given its small size.
If AI infrastructure spending remains strong, and Nvidia’s results may offer the latest read on that demand, smaller, specialized suppliers like RFIL may continue to attract investor attention. With strong earnings momentum, improving margins, and a constructive technical setup already in place, RF Industries is a small-cap AI name investors may want to keep firmly on their radar.
Zacks Names #1 Semiconductor Stock
This under-the-radar company specializes in semiconductor products that titans like NVIDIA don’t build. It’s uniquely positioned to take advantage of the next growth stage of this market. And it’s just beginning to enter the spotlight, which is exactly where you want to be.
With strong earnings growth and an expanding customer base, it’s positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $971 billion by 2028.
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This article originally published on Zacks Investment Research (zacks.com).
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