According to RBC Capital, value stocks and the larger markets might compete with AI stocks in the upcoming year.
Although they will require an earnings boost, value stocks and the remainder of the stock market—aside from megacap tech companies—which have occasionally outperformed the dominant growth factor this year, may be prepared for more advancements in 2026.
The head of U.S. equities strategy at RBC Capital, Lori Calvasina, believes that the top ten tech stocks will continue “to keep fighting back until earnings growth dynamics shift more clearly in favor of the value trade or the broader market.”
The Russell 1000 Value Index RLV has increased 13% so far this year, while the Russell 1000 Growth Index RLG has increased more than 18%.
“While 2025 is poised to go down as another year of leadership for growth and top 10 market-cap names, there have also been a few powerful outperformance trades by value and the broader market this year, including one to start the year and another that’s taken hold over the past few weeks,” Calvasina wrote in the bank’s Monday outlook.
A year ago, Calvasina says, she thought the battle between growth and value, as well as between the top 10 market-cap stocks and the rest of the market, would last a little longer. At the time, some of her colleagues were advocating for that rotation in 2025.
However, according to the strategist, the problems with the value trade and broader-market names are comparable to those with the growth names.
“When we look at the valuations of value and the broader market, excluding the top market names relative to their own history (independent of growth and the top market cap names), we find that they also look expensive, not quite as bad, but not entirely different from what we’re seeing in growth and the top market-cap names in terms of their proximity to recent peaks,” she stated.
Investor anxiety over several of the major themes—the artificial intelligence trade, the “Magnificent Seven” group of megacap tech stocks, and market concentration—is a major factor in favor of the idea of leadership rotation. According to her, institutional investors that RBC Capital has dealt with in recent months have expressed serious concerns about those regions.
“Interestingly, individual investors have also become concerned about the heavy concentration of the stock market in the AI theme,” she stated in response to a query posed in the weekly survey conducted by the American Association of Individual Investors. A third of retail investors consider the high concentration of those stocks to be a significant risk, according to the study.
Calvasina stated, “While we are not in the AI bubble camp, we don’t think these fears are unfounded,” adding that they are worried that play is beginning to overtake itself.
According to recent data on U.S. equity fund flows, value funds have also shown better trends in flows than growth funds. The strategist, who has set a performance objective of 7,750 for the S&P 500 SPX in 12 months—though it will be on a rolling basis going forward—said, “We believe that this gives an edge to value and the broader market over growth and Mag 7 as we head into the new year.”
