“Don’t call it a comeback‚” LL Cool J once implored us. OK, I won’t. Yes, value stocks have outperformed growth so far in 2026. Value also enjoyed a small edge in 2025.
But the 2025 value stock triumph was only according to Morningstar’s investment style methodology. Some of our competitors who traffic in style indexes saw 2025 differently. Growth certainly won the year when it came to mutual fund performance.
Methodological squabbles aside, there’s also the matter of history. The growth side of the US equity market has been winning for the better part of 15 years. With a couple of notable exceptions, like 2016 and 2022, growth stocks have left their value counterparts in the dust.
“The value premium is dead,” some say, referring to academic research that came out around the same time as LL Cool J’s noncomeback. Others see eulogies as contrarian indicators. As investors contemplate portfolio positioning, it’s a good time to consider the future for US value stocks.
Did Value Stocks Win in 2025 or Not?
I’m going to look at the Morningstar US Large-Mid Broad Growth and Value Indexes, which split the market in half and map to Morningstar’s US Large Growth and Large Value categories for mutual funds. These indexes use the same 10-factor methodology as the Morningstar Style Box. Companies can be included in both growth and value indexes, albeit at different weights.
When I run attribution analysis for the value index, the two biggest drivers of its 2025 outperformance show up as Alphabet GOOGL and the financial-services sector. Alphabet, parent company of Google, saw its share price rise more than 60% in 2025, making it the best performer of the Magnificent Seven. While the company was included in both our growth and value indexes, it had a higher weight in the value index over the course of the year, so contributed more.
How could we classify Alphabet a value stock? Remember that at one point in 2025, the share price was down more than 20%. Alphabet faced investor skepticism about its ability to compete in the artificial intelligence age; its core business, internet search, was perceived to be at risk. On measures like price/sales, the company leaned value.
Alphabet’s large weight in the value index positioned it well for the company’s share price surge in the second half of 2025. In September, the company won an antitrust ruling and avoided breakup. Growth drivers like Google Cloud helped it beat third-quarter earnings expectations. Its Gemini AI model has also impressed.
As for the financial-services sector, it shone bright in 2025. Banks posted strong earnings against the backdrop of a healthy economy and deregulation. JPMorgan Chase JPM, Goldman Sachs GS, Bank of America BAC, and Wells Fargo WFC saw big share price gains in 2025, which boosted the value index.
While financial services are a common sector emphasis for value indexes, Alphabet is more polarizing. The stock has migrated across the Morningstar Style Box over the past few years. Some index providers have viewed the stock as more growth-leaning than Morningstar does.
As for how Alphabet has been approached by active fund managers, the stock is a prominent holding in strategies of both types. It has been a major contributor to American Funds Growth Fund of America AGTHX, as well as large-value Oakmark Fund OAKMX (which I own). Berkshire Hathaway BRK.A even initiated a position in Alphabet in the third quarter.
Value Stocks Have Underdelivered
“Buy high, sell higher” has been a winning investment strategy in recent years. The notion that stocks trading at low multiples of fundamental measures outperform—either as compensation for risk or because their prices reflect overly pessimistic assessments—has not been borne out, at least in the US. In other markets, value investing has done better.
As you all know, a group of stocks first known as FANG, then the Magnificent Seven, sometimes the “hyperscalers” have gone from big to ginormous. Technology trends have driven US stock market gains for the better part of 15 years. Before artificial intelligence, it was mobile computing, the cloud, and e-commerce. The pandemic was a massive tech accelerant.
The two calendar years in which value meaningfully outperformed are worth mentioning. In 2016, President Donald Trump’s surprise electoral victory sent “Old Economy” stocks in value sectors like industrials and financial services soaring. In 2022, inflation and interest rate hikes hit growth stocks hardest, while the Russia-Ukraine war pushed up oil prices, boosting the value-leaning energy sector. A soaring energy sector also helps explain value stocks’ outperformance so far in 2026.
You’ll notice I’m using economic sector to explain investment style performance dynamics. I find sector a more important influence on style leadership than factors like interest rates. In 2022, a narrative arose that growth stocks’ long-dated cash flows were devalued by rising rates. But then growth outperformed in 2023 amid continued rate hikes. The 2022 experience could also have been a case of highflyers having the furthest to fall in a risk-off market.
In any case, some say the value factor never existed or is obsolete. The skeptics point to the importance of “intangible assets,” which aren’t captured in price/book, the classic value metric. It could be that crowding has eroded mispricings. Quantitative trading strategies are always a good scapegoat.
So Why Bother With Value Stocks?
One thing that can be said with certainty is that the growth side of the market looks far more concentrated than the value side. The top 10 stocks represent 56% of the growth index’s weight, compared with 29% for value.
Growth is also more concentrated by economic sector. While the growth side of the market is roughly half technology (not including communication services stocks Alphabet and Meta META, as well as Amazon.com AMZN, a consumer cyclical), value is more diffuse. The consumer defensive, healthcare, financial services, industrials, energy, and utilities sectors are all more heavily represented within value.
Concentration can be both a plus and a minus. When the market’s behemoths are flying and when the technology sector is leading, growth benefits. But when the market shifts into “risk-off” mode, growth stocks can get punished. It’s no coincidence that both growth indexes and growth funds have been significantly more volatile than their value counterparts, judged by standard deviation of returns.
In recent years, AI has been a key influence on investment style leadership. During periods in which investors have turned skeptical toward AI stocks, value has outperformed growth. That applies to the third quarter of 2024, the first quarter of 2025, and the fourth quarter of 2025. It’s still early in 2026, but value is ahead so far.
Styles Come In and Out of Fashion
Could AI actually end up lifting value stocks? Last year, I interviewed Vanguard chief economist Joe Davis for Morningstar’s The Long View podcast. He thinks AI is likely to become a general-purpose technology that boosts growth and productivity. Somewhat counterintuitively, he concludes: [I]f you’re the most bullish on AI, you actually want to invest outside of the ‘Mag 7’ and technology sphere.” Citing previous periods of disruption, he notes that intense competition can erode returns for technology leaders. Meanwhile, companies throughout the economy find ways to apply technology productively.
Historically, investment style leadership has been cyclical. Some draw parallels between an AI-enthused stock market and the internet bubble of the late 1990s, when value investing was also presumed dead. In those days, price-sensitive investors like Warren Buffett were mocked for “not getting it.” Then the bubble burst, and value outperformed growth from 2000 until the financial crisis came in 2007. As my colleague Jeff Ptak recently showed, years of technology sector outperformance could presage tough times ahead. Perhaps we are in the midst of a style rotation that will only become clear in retrospect.
Whatever the future holds, no LL Cool J-style “knockout” will be declared in the growth versus value fight. Growth has had value on the ropes for years, but there are always more rounds ahead. Market dynamics are always shifting, as Alphabet’s migration across the Morningstar Style Box shows. Regardless of which style “wins,” it’s important to acknowledge current risks on the market’s growth side. You don’t have to believe in a “value premium” to see value stocks as diversifiers right now.
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