Core Insights - Conestoga Capital Advisors reported a decline of -1.4% in its Conestoga Small Cap Composite for Q3 2025, underperforming the Russell 2000 Growth Index which gained 12.2% [1] - The performance of the Russell 2000 Growth Index was largely driven by low-quality stocks, particularly unprofitable, high-beta names [1] Company Overview: AAON, Inc. - AAON, Inc. (NASDAQ:AAON) has a market capitalization of $7.928 billion and specializes in engineering, manufacturing, marketing, and selling HVAC systems [2] - The stock experienced a one-month return of 4.63% but has seen a decline of 11.45% over the past 52 weeks, closing at $97.24 on October 17, 2025 [2] Financial Performance and Challenges - AAON's Q2 results initially disappointed investors, but were later viewed as a clearing event due to a strong backlog of $1.1 billion and growth in its BASX business [3] - The company faced challenges including sluggish demand in its core rooftop HVAC business, manufacturing inefficiencies from an ERP implementation, and expansion costs for its Memphis facility [3] - In Q2, AAON's net sales decreased by $2 million year-over-year to $311.6 million [4] Market Sentiment and Hedge Fund Interest - AAON, Inc. was held by 29 hedge fund portfolios at the end of Q2 2025, an increase from 18 in the previous quarter [4] - Despite its potential, the company is considered less favorable compared to certain AI stocks that are perceived to offer greater upside potential and lower downside risk [4]

Macro Background - The Federal Reserve is expected to cut interest rates twice this year and three more times by 2026, bringing rates down to around 3.25% [1] - U.S. households currently hold $19 trillion in cash, which is 30% higher than pre-pandemic levels, and this cash is being eroded by inflation and taxes, necessitating better investment options [1] - Economic indicators show a "weak recovery but not recession" trend, with soft data slightly improving and hard data remaining stable [1] AI Enablers - "AI enablers" refer to sectors that provide foundational support for the AI industry, including utilities, industrials, nuclear energy, and pipeline MLPs [4] - Over the past two years, these sectors have outperformed the Nasdaq 100, with significant absolute returns and better risk-adjusted returns in some areas [4] - However, the correlation between these "AI enablers" and tech stocks has reached new highs, indicating potential risks if AI spending slows [7][4] Sector Analysis Energy - Natural gas is experiencing a "double benefit" with increased demand from data centers and the lifting of LNG export bans, leading to a reevaluation of natural gas sector valuations [8] - The construction of LNG export facilities is accelerating, creating a second growth curve for the natural gas sector over the next five years [8] - Government policies are becoming more favorable towards the energy sector, with recent approvals for pipeline projects in the Appalachian region [9] Industrials - The industrial sector is driven by AI and manufacturing reshoring, with record order growth expected in the next 2-3 years, particularly in semiconductors, pharmaceuticals, and defense [10] - AI contributes approximately 20-25% to the increase in electricity demand, with the majority coming from electrification policies and the rise of electric vehicles [10] Utilities - The utility sector is projected to grow at 6-8%, driven by increased industrial electricity demand and aging infrastructure [11] - Regulated utility companies are expected to see growth rates rise from 2-4% to 6-8%, with a total annualized return potential of 10% [11] Nuclear Energy - Nuclear energy is favored for its low correlation with tech stocks and long-term growth potential, especially in the context of carbon neutrality goals [13] - The market for small modular reactors (SMRs) is expected to reach $1 trillion by 2050, meeting about 25% of global electricity demand [13] Investment Recommendations - Two core ETFs are highlighted for investors: AIRR (small-cap industrials) and PAVE (infrastructure), both offering high returns with lower volatility [16] - For nuclear energy, URA (uranium ETF) and NLR (nuclear ETF) are recommended due to their low correlation with tech stocks and strong performance metrics [17]