While Wall Street continues to chase the same handful of AI megacaps, PSG Equity just raised $8 billion, and it’s not aimed at the usual names. The Boston-based private equity firm is targeting high-growth tech firms that have spent the last two years out of favor.

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After the 2022–23 tech selloff, most investors turned their backs on small and mid-cap tech. PSG is doing the opposite. This is not a casual capital raise. It’s a signal that smart money is now looking downmarket, where the real innovation often starts.

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PSG focuses on software, digital infrastructure, and cloud-native services—sectors that got hammered post-COVID but now sit at the core of enterprise transformation. These companies tend to be cash-light, engineering-heavy, and positioned for scalable growth in emerging markets like:

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• Cloud optimization
• AI-driven cybersecurity
• Data infrastructure and edge computing

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This isn’t about betting on the next Nvidia. It’s about finding the companies building the backbone that generative AI will rely on over the next decade.

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Why This Matters Now

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Private equity firms don’t raise $8 billion to sit still. They engineer growth. That means acquisitions, operational scaling, and aggressive expansion into markets where valuations have fallen but demand is coming back.

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The broader tech market has already recovered at the top end. Microsoft, Alphabet, and Nvidia have seen record flows. But beneath the surface, dozens of tech enablers are still trading far below 2021 highs, despite improving fundamentals.

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The AI Story Is Still About Infrastructure

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PSG’s timing aligns with a major blind spot in today’s market: AI's real growth depends on systems, not just software. Cloud delivery, optical networking, and thermal management are all critical for scaling AI products.

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Some of the most relevant players include:

• Applied Optoelectronics – Specializing in fiber optics that power high-volume data centers
• Coherent – A supplier of laser and photonics components used in AI hardware
• Infinera – Focused on next-gen networking for cloud-scale traffic
• Modine Manufacturing – Providing cooling systems for high-performance computing, essential for thermal control in AI training environments

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These are not headline stocks, but they are positioned at the foundation of the infrastructure that large-language models and real-time AI applications need to function.

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What Investors Should Watch

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With interest rates leveling off and private equity liquidity flowing again, there’s growing potential for a re-rating in overlooked tech. PSG is not betting on sentiment—they’re betting on capacity, technology, and scalability.

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When firms like PSG make moves of this size, it often precedes a wave of M&A, pipeline funding, and sector rotation. The names they invest in may not dominate headlines, but they often become acquisition targets or platform companies within a few years.

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Retail investors are still focused on the front-end of AI. PSG just placed a multi-billion-dollar wager on the backend.

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This isn’t momentum chasing. It’s long-cycle positioning—and it usually happens just before Wall Street starts paying attention.

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Investors looking for real upside in 2025 should take note of where the capital is quietly flowing. Not into crowded megacaps, but into the undervalued firms building the rails for the next era of tech.

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