Value investors retool their models to keep up with the AI stock market
Chris Grisanti, a value investor who started in the industry in the 1990s, disagrees with the idea that value-oriented investors can’t also wade into technology companies. The chief market strategist at MAI Capital Management took a big position in Dell Technologies earlier this year, a bet that paid off when the server maker suddenly caught AI lightning in a bottle after earlier selling for just eight times earnings. The computer hardware stock has surged more than 350% this year, leading Grisanti to cut his stake by two-thirds after scoring a 400% gain. “We owned a large position in Dell Computer at the beginning of the year, not because we’re brilliant, but because it was really cheap,” said Grisanti. “It was a classic value stock.” Grisanti calls himself a value investor, but one who wades into areas typically avoided by other value types — the ones who blanch at the thought of risking their capital on the promise of future returns rather than present cash flows. The MAI Focused Equity Portfolio — a concentrated value-oriented strategy of perhaps 22 stocks — also counts Microsoft and Amazon among its holdings, in addition to more traditional value plays like General Motors , Kimberly-Clark and UPS . This year, he added to Nvidia for the first time , as weak sentiment suddenly shrouded the AI darling, depressing the stock price. More flexible A more flexible definition of value has helped the fund to outperform in a market that has rewarded the fastest hands holding the hottest growth stocks, while traditional value investors flounder. The focused equity portfolio is about 8 percentage points ahead of the market this year, after outpacing it in 2025, the strategist said. The three-year performance is also ahead of both the market and the Russell 1000 Value index . “There are two broad categories of value investors: those that will embrace technology and be comfortable with, say, Amazon or Google , and those that say ‘no, this is all, you know, future earnings,'” Grisanti said, while “real value investors” focus solely “on present cash flow.'” “I’m in the first category. I want to buy cheap, cheap stocks that will flourish in the future.” “Those folks in the second category have really continued to suffer,” and are lagging even value stock indexes, he added. Tilted to tech The murkiness around traditional value principles illustrates the difficulties active managers have in keeping up with the current market, one that has gotten more concentrated this decade thanks to just a handful of mega-cap firms that have benefited explosively from the AI trade. The top 10 stocks in the S & P 500 account for roughly 40% of the entire index. But recent style shifts have tilted many other stock market benchmarks heavily toward tech as well. The three largest stocks in the the Russell 1000 Value index, for example, are now Amazon, Apple and Microsoft, which together account for about 16% of the index. Amazon was added to the value index in June 2025, after its price-to-book value ratio fell to historic lows. Adding Amazon only made it more challenging for traditional value managers, who struggled to keep up with the market after the global financial crisis heralded a long period of zero interest rates that drove up the price of high growth tech companies. More recently, since late 2022, when the release of ChatGPT triggered a frenzy around the AI buildout, an investor in large-cap growth stocks would have netted a cumulative return of more than 98%, measured by the Russell 1000 Growth ETF (IWF) . Large-cap value stocks in the Russell 1000 Value ETF (IWD) rose just 34% in the same span, one-third the gain in growth. “What we are seeing a lot of is, with the concentration in the indexes, managers more and more feel that they have to sort of keep up with those indexes,” Todd Trubey, senior manager research analyst for Morningstar, said last month. “It’s one thing if the top stock in an index is a 2% weight to just not own it. If it’s a 5% weight or an 11% weight, that becomes really meaningful and it increases your tracking error,” Trubey added. Break from discipline Trubey, who covers large-cap dividend-oriented strategies, said that the concentration in the market is leading to changes in long-standing funds. The people and process ratings at Vanguard Dividend Growth fund (VDIGX) , a $35 billion fund dating back in 1992, were recently downgraded to “average” from “above average” at Morningstar after Trubey found unnerving changes in management and investment discipline. Vanguard Dividend Growth is a large-cap blended fund oriented toward value, and it’s lagged in the last several years during a challenging time for dividend growth strategies, Trubey wrote, landing in the bottom quartile of funds in its category across one-, three-, and five-year time periods, according to Morningstar data . In July, manager Peter Fisher retired after a short and disappointing tenure. More recently, managers Tim Casaletto and Tom Levering have come to lead the fund after stints covering energy and utilities. Since then, the fund has relaxed the rule that stocks in the portfolio have to pay and grow a dividend. That marked a dramatic break from what had been “a very disciplined, very orderly mechanism” in the past, Trubey said. Changes at JPMorgan Equity Income fund (OIEIX) were “similar, but not as extreme,” Trubey said. Managers at the $43.1 billion fund created in 1987 recently relaxed the requirement that every holding yield 2% or more — then they dropped the dividend requirement altogether following Amazon’s addition to the Russell 1000 Value ETF, Trubey said. Amazon, which doesn’t pay any dividend, was the fund’s top position as of July, accounting for more than 6% of the fund. Neither Vanguard nor JPMorgan immediately responded to a request for comment. AI: ‘Equal opportunity employer’ Taken together, the moves to relax long-held disciplines at two flagship value funds raised eyebrows at Morningstar. Trubey saw the break as another signal of the challenges of value investing today. Troublingly, the analyst sees more value investors throwing in the towel as possibly signaling stress in the market, which has drawn comparisons to the dot-com bubble of the late 1990s as stocks skyrocket on the promise of AI. “These are the types of things that you can see when a market is frothy or topping out,” said Trubey. “Obviously, with the the AI enthusiasm, that’s all growth, right? It becomes harder and harder to be a value-oriented manager, and so what you see is … managers retire, you see strategies change.” To be sure, value has actually outperformed growth by a significant bit this year, as gains from artificial intelligence expand to the broader market. The IWD, for example, has surged 20% this year, while the IWF is actually up by just 7%. Of course, the prospect of further tightening campaign with the Federal Reserve could throw a dampener on the most cyclical sectors of the market. But it’s clear that investors are using the dislocations in the market to find value where there wasn’t before. “AI has allowed value folks to play, also,” MAI’s Grisanti said. “So, it’s an equal opportunity employer in the sense of both value and growth have done well under AI.”
