Value Outperforms Growth This Year, Powered By…AI Stocks? - WSJ

Value Outperforms Growth This Year, Powered By…AI Stocks? Early chip stock gains and a comeback in traditional value sectors are factors in Russell 1000 Value Index’s outperformance over its growth counterpart By Vicky Ge Huang July 28, 2026 5:11 pm ET Quick Summary * The Russell 1000 Value index has gained about 20% this year, outperforming the Russell 1000 Growth Index. * In June, the Russell Index reconstitution shifted tech giants Amazon, Apple and Microsoft partially or further into the Russell 1000 Value Index. * Apple briefly hit $5 trillion in market cap on Tuesday, surpassing Nvidia as the most valuable company. Value stocks are quietly outperforming growth this year, but the companies driving the surge look nothing like traditional value plays.  The Russell 1000 Value Index has gained about 20% this year, trouncing its growth counterpart, the Russell 1000 Growth Index, which has declined 1.6%. Value stocks typically trade at a discount to what a company’s profits suggest they are worth; growth stocks aren’t cheap, but are expected to increase earnings at a faster-than-average pace. The performance gap between the Russell benchmarks caught some investors off guard—until they examined the list of names leading value’s glorious comeback: a cadre of technology companies, including some of the Magnificent Seven.  Yes, investors have been rotating out of some of the (formerly) highflying chip stocks in recent weeks and into less loved sectors such as consumer staples and healthcare, which rose 2% and 2.3% on Tuesday, respectively. But some of those tech giants that came to represent the future growth of the economy and dominate the market are value stocks now. Technically, at least. In June, the Russell Index reconstitution shifted tech giants [Amazon](https://www.wsj.com/market-data/quotes/AMZN) , [Apple](https://www.wsj.com/market-data/quotes/AAPL) and [Microsoft](https://www.wsj.com/market-data/quotes/MSFT) partially or further into the Russell 1000 Value Index while migrating key chip makers, including [Micron Technology](https://www.wsj.com/market-data/quotes/MU), [Advanced Micro Devices](https://www.wsj.com/market-data/quotes/AMD) and [Western Digital](https://www.wsj.com/market-data/quotes/WDC), into its growth counterpart. The rebalance took place in late June, when semiconductor stocks were riding a seemingly relentless surge and megacap tech was lagging behind. In short, the value index rode those chip makers to new heights, then swapped them out for Amazon, Apple and Microsoft just as they were touching recent lows.  “It was like the index got so lucky,” said Sam Peters, portfolio manager on the value strategy at ClearBridge Investments. “It caught that blow‑off top in momentum, and then sold it right before they rolled over.” Investors will get an important update from Apple and Amazon when they report quarterly earnings.  On Tuesday, the Dow Jones Industrial Average gained 1%, or 537 points, while the S&P 500 rose 0.2%. The tech-heavy Nasdaq fell 0.2%. Value stocks began their ascent this year while still trading at a steep discount to their growth counterparts. The rally gained further traction as surging energy prices and broader AI momentum lifted the sector. Then came the June reconstitution of the Russell 1000 Value Index, which removed many chip names shortly before chip stocks lost their momentum. “This was hugely consequential and very different from what has happened in previous rebalances because we got Apple, Microsoft, Amazon,” said Mary Jane Matts, director of large-cap equities at CS McKee. “They all came in at huge weights, and where they are in terms of the market capitalization, they are now dominating this value benchmark.” Value indexes are historically dominated by established names with reliable cash flows, featuring sectors such as financials, energy, industrials and utilities. [Value investors](https://www.wsj.com/finance/stocks/value-investings-comeback-is-just-a-quirk-for-now-8e345cc4?page=1&mod=article_inline) argue that this year’s resurgence isn’t a fluke, but the start of a sustained long-term run. Even with recent gains, value stocks remain incredibly cheap compared with their growth brethren. At the end of June, the Russell 1000 Growth Index traded at a 12-month forward price-to-earnings ratio of 26, compared with a forward P/E of 18 for the Russell 1000 Value Index. What’s more, many of today’s value holdings are displaying growth characteristics, offering the strategy a dual tailwind. For example, Apple briefly hit $5 trillion in market cap on Tuesday, surpassing [Nvidia](https://www.wsj.com/market-data/quotes/NVDA) [NVDA 0.25%increase; up pointing triangle](https://www.wsj.com/market-data/quotes/NVDA) as the most valuable company.  Still, the recent big-tech invasion has created a paradox. The Russell 1000 Value Index now looks more like a “poor man’s growth index,” driven more by earnings expansion than cheap asset multiples, according to ClearBridge’s Peters. This shift complicates life for traditional stock pickers who strictly adhere to the deep value principles of Benjamin Graham, Warren Buffett’s mentor. “You have to play the game that’s on the field,” Peters said, adding that he is still overweight traditional value sectors including energy, healthcare and other real assets such as commodities and materials. “You have to invest in the market you have, not the one you want.” Krishna Chintalapalli, portfolio manager at Parnassus Investments, argues that the changes are good news. Value investing must evolve beyond cheapness to focus on corporate quality, especially as AI permeates traditional value sectors like financials and utilities, he said.  Chintalapalli views Amazon and Microsoft as value plays because both companies boast durable economic moats and strong earnings power while trading at reasonable discounts compared with their historical norms and peer group.  “AI is pervading and impacting every sector,” said Chintalapalli. “It is a little hard to have a very old‑school approach to value investing. You have to adapt it to the current environment, and that means you have to marry quality with value.” Beyond megacap tech, Chintalapalli has found AI-linked value plays in the picks‑and‑shovels layer of the infrastructure build-out. One key holding is Cummins, a diesel-engine manufacturer trading at low multiples while benefiting from a fresh growth catalyst supplying backup generators to data centers. Another top pick is Brookfield Renewable, a renewable power platform contracting multiple gigawatts with hyperscalers like Microsoft and Alphabet. Expanding market leadership and broader earnings growth across sectors has also benefited small-cap value stocks, said Francis Gannon, co-chief investment officer at Royce Investment Partners. The Russell 2000 Value Index has outperformed its growth counterpart since hitting bottom during last April’s “tariff tantrum” selloff. So far this year, the small-cap value benchmark is up 23%, outpacing the growth index’s 15% gain. “The broadening of the market has led to value outperformance, but the broadening of the market has also been because earnings growth has broadened out as well.” FIN