When the olden ones fall: does the market punish value investors?
- Levente Juhász
- 22 hours ago
- 5 min read
For more than a decade, traditional investing disciplines were steadily pushed aside. Value portfolios lagged, dividend strategies, and defensive sectors, once praised for resilience, turned irrelevant compared to the rise of growth-driven markets. What looked like a temporary deviation became a structural shift. By the time the pandemic ended and the AI boom ignited, investors had largely resigned themselves to the idea that the old playbook no longer worked.
The paradox is that this very boom, led by a handful of extraordinary performers in artificial intelligence, may now be setting the stage for a re-evaluation of those forgotten strategies. To understand why, it is worth revisiting how we arrived here, what the data tell us about the long-standing performance gap, and why some investors are now quietly returning towards cashflow-rich, steady businesses.
The Death of Traditional Investing
The period following the 2007–2008 financial crisis reshaped modern markets. Extraordinary monetary policy kept interest rates at the lowest levels in modern history. This environment dramatically changed how companies were valued. Future earnings were discounted at unprecedentedly low rates, giving growth companies a structural advantage that overwhelmed anything offered by more stable, cashflow businesses.
This difference is visible across all major datasets. Consider the performance of companies sorted by their book-to-market ratios. Since 2007, portfolios representing the highest book-to-market (traditional “value”) ratios have significantly underperformed portfolios with the lowest ratios (“growth”).
For value investors, many of whom built entire careers on the idea that valuation matters, this was a humbling period. The belief that “value always wins in the long run” was challenged by a long run that was seemingly never arriving.
Dividend strategies did not perform much better either. Exchange-traded funds focusing on high dividends or dividend growth lagged the broader market consistently. Several high-dividend funds underperformed not only the S&P 500, but even the more defensive sectors once considered dependable stores of value.
Defensive sectors, staples, and utilities, historically seen as shelters in uncertain times, were similarly left behind.
These trends did not simply create a performance gap. They changed the psychology of the market. Investors began to internalise the idea that old-fashioned fundamentals no longer mattered. Younger investors entered a market that rewarded thematic momentum over cash flow. Even seasoned professionals recalibrated towards growth simply to keep up with their benchmarks.
AI Boom: Narrow Leadership and Winner-Take-All Dynamics
Just as the cost-of-capital regime was beginning to shift, with inflation rising and central banks tightening aggressively, a new force entered the market: generative AI.
Companies positioned at the centre of the AI ecosystem experienced explosive gains. Nvidia became one of the most powerful drivers of global equity returns. Large language models reshaped expectations for productivity, infrastructure demand and capital expenditure. A handful of mega-caps dominated index performance to an extent rarely seen in history.
This is what they call the AI boom: a period defined by extraordinary earnings growth from a small group of firms combined with remarkable expectations about the future.
But while the headlines centred on AI breakthroughs, something else was slowly happening in the offices of large investment companies. The market was becoming increasingly narrow. Passive flows concentrated capital into a shrinking set of leaders. The dispersion between the top 5 or 10 companies and the rest of the index widened. The idea that diversification alone could protect portfolios began to look uncertain.
This environment highlighted a paradox:
The stronger the AI leaders became, the weaker the rest of the market looked by comparison.
This realisation is what we see in the market in the last part of 2025. Traditional investors like Warren Buffett have grown impatient with the reckless investment times, now seeking higher cash flow and stable investments. Therefore, the AI bubble might perform CPR on the dying value investment strategy.
Why the AI Bubble May Be Reviving Traditional Investing
The AI boom did not restore traditional strategies directly. Instead, it changed the environment around them:
Higher interest rates restored the relevance of cash flow. Suddenly, companies generating real earnings again mattered. Businesses relying on distant future profits faced stricter valuation tests.
Concentration risk became impossible to ignore. Portfolios tied heavily to a small group of AI winners carried a level of single-theme risk that many institutional allocators found uncomfortable.
Traditional areas became deeply undervalued. After a decade of neglect, dividend payers, utilities, financials, and industrials traded at compelling valuations relative to their growth rates.
The early evidence shows stabilisation and tentative narrowing of the performance gap. Equal-weighted baskets show the trend clearly: growth remains ahead, but traditional sectors have stopped falling behind and have begun delivering consistent positive returns again.
The Last Six to Twelve Months: A Subtle Turning Point
Short-term performance data tells a more nuanced story than the long-term charts. Growth leaders, particularly Nvidia, still sit comfortably at the top, reflecting the continued strength of the AI theme. QQQ and TSLA also remain ahead of the market.
But the gap is no longer widening. Over the past six to twelve months, the traditional side of the market has delivered steady, positive returns. SPY is now only a little behind the growth names, and dividend-focused strategies such as VIG and VYM have stabilised after a difficult few years.
This is not yet a full rotation, but it does mark the early stages of one. Growth remains in front, yet the performance spread is narrowing, and the more defensive, income-oriented parts of the market are beginning to recover.
A Market at an Inflexion Point
We are now in an unusual moment. Growth, driven by AI, is still in command. The gains are substantial, and innovation continues to produce real economic value. Yet beneath this, the groundwork for a more balanced market is forming.
The old playbook: cash flow, valuation, profitability, and capital discipline may not reclaim leadership immediately. But it is no longer being structurally penalised by zero interest rates. Investors who once abandoned traditional strategies are revisiting them not because growth is unattractive, but because portfolios built entirely around AI-dominant mega-caps carry risks that are becoming harder to justify.
The outcome is unlikely to be a dramatic rotation. More often, such transitions occur gradually. But the combination of improved traditional performance, rising dispersion, and a maturing AI narrative suggests that the coming cycle may look very different from the last.