Key Bank: Mid-market companies have confidence and are investing in their future

Middle market companies have a strong outlook for their own finances even if many are concerned about the nation’s overall economy. 

That’s the findings of the latest edition of KeyBank‘s Middle Market Sentiment Report.  

In the survey, 77% of executives rate their company’s financial outlook as excellent or very good, even as confidence in the broader U.S. economy remained relatively flat at 51%. 

“Middle market companies feel really good about their own 12-month outlook, but not so good about the nation’s economy,” said Chris Smith, mid-market leader for Eastern Pennsylvania at Key Bank. “They would like a little more certainty about what’s going on in the world. 

Smith said that rather than waiting for economic conditions to improve, however, companies are investing in the capabilities they believe will drive long-term growth. 

Those areas include AI, workforce development, and M&A.  

“AI is a major driver of investment,” Smith said. “Companies are really leaning into that right now to improve efficiency and improve their margins. 

He said that a total of 54% of companies surveyed identified AI and technology expansion as their top capital investment priority for 2026, noting that AI has evolved from an emerging technology discussion centered on cybersecurity and fraud prevention to a core business strategy focused on improving operations, productivity and decision-making. 

Rather than pursuing broad expansion, companies are increasingly directing capital toward investments that strengthen core capabilities and long-term competitiveness, with Manufacturing joining Technology as the most optimistic industry for growth. 

Because of the expected increase in demand for AI and other evolving technologies, companies are also investing in making sure employees have the skills they need to keep up. 

The report finds reskilling existing employees and hiring AI talent are becoming increasingly important workforce priorities, reflecting a growing recognition that technology investments deliver the greatest impact when paired with the right talent and capabilities. 

“There is capital funding workforce development,” Smith said. “The data center workforce needs to be developed as well as tools for data analytics.” 

Confidence is translating into action, said Smith. Companies with a positive business outlook are significantly more likely to seek additional capital to fund growth than their more cautious peers— a 26-point gap.  

At the same time, reliance on private equity has moderated across recent editions of the report, no longer the top choice for capital investment. 

Buy-side M&A activity is expected to strengthen throughout 2027 and 2028, particularly among technology companies, larger firms and organizations led by CFOs and CEOs with active acquisition strategies. 

“There is some M&A activity, but many companies are waiting for clarity before they make major decisions,” Smith said. “There was some M&A activity in the first half of the year, but we expect increased activity in the third and fourth quarter.” 

Cybersecurity also remains a consistent investment priority regardless of business outlook, underscoring its role as foundational to future growth as AI adoption accelerates. 

“Cyber security and fraud risk are up,” Smith said. “The better tech gets the better fraudsters get.” 

And so, he said, companies are responding and investing in their own security. 

“The defining characteristic of today’s middle market isn’t simply confidence—it’s resilience,” said Ken Gavrity, president, Key Commercial Bank. “They’ve shown the ability to be dynamic in the face of fairly substantial macro shocks, and they trust their ability to allocate capital toward investments they believe will create long-term value, regardless of short-term volatility.”