Beyond big tech: Why value stocks deserve a closer look

Just outside Washington, D.C., in suburban Northern Virginia, lies “data center alley,” a dense cluster of warehouse‑like facilities powering the rise of artificial intelligence (AI).

These hubs aren’t just fueling innovation—they’re a metaphor for today’s market dynamics: concentrated, high‑powered, and increasingly expensive.

However, while U.S. tech giants have dominated headlines and equity market performance, the story doesn’t end there.

Alongside decisive policy moves, the surging demand for physical infrastructure is creating compelling opportunities in value stocks across global markets. As capital continues to flow into AI and digital transformation, the ripple effects are unlocking tactical plays in sectors often overlooked.

Value reawakens

After lagging for the better part of two decades, value and global ex‑U.S. stocks saw a resurgence earlier this year as protectionist trade policies, broader deglobalization efforts, and threats to tech profits prompted a pivot toward diversification and defensiveness.

However, resilient earnings, trade deals, and optimism over the One Big Beautiful Bill Act have since reignited animal spirits and enthusiasm for U.S. growth and tech stocks.

Once again, valuations in growth‑focused sectors have climbed, with forward price‑to‑earnings (P/E) ratios exceeding historical norms (Fig. 1). While U.S. growth equity fundamentals remain strong, current pricing suggests that better value may lie in value and non‑U.S. stocks.

Big, beautiful buildout

Although tariff whiplash has kept U.S. economic growth in flux, parts of the Trump policy agenda are laying the groundwork for a potential pickup in industrial activity.

Tax incentives such as permanent full expensing of factories and other capital investments —while also additive to tech shares—should provide tailwinds for industrials, materials, and energy stocks essential to building out AI infrastructure. These value‑oriented sectors also stand to benefit from deregulation and reshoring initiatives.

While the initial shock of “Liberation Day” has eased, tariff‑related risks persist, including upside risks to inflation and threats to growth segments levered to global trade.

Against this backdrop, value sectors could provide similar upside potential as growth stocks with less downside risk, as well as an inflation hedge.

Green shoots and Goldilocks rates in Europe

Across the Atlantic, macroeconomic and geopolitical developments in Europe are supporting their own value narrative.

The potential reduction in U.S. military presence has prompted Germany to reimagine its fiscal framework, with increased spending planned for defense, infrastructure, and the green energy transition.

Meanwhile, inflation progress has enabled the European Central Bank to normalize monetary policy, creating a “just right” rate environment for Europe’s more cyclical economy. Additionally, positive rates and steepening yield curves could help narrow valuation gaps for European banks, whose price‑to‑book (P/B) ratios have trended higher but still trail U.S. peers’ and remain below pre‑2008 levels (Fig. 3). Improved net interest margins, loan growth, and stronger earnings outlooks provide favorable tailwinds.

Asia’s structural tailwinds

Structural reforms in Asia are adding momentum to the case for equity market broadening.

In Japan and South Korea, steps toward improved corporate governance and other shareholder‑friendly actions could drive better capital allocation and operating performance in cyclically depressed segments.

China is also showing signs of stabilization. Fiscal stimulus, progress on trade negotiations, and a potential bottoming of the deleveraging cycle are creating a more supportive environment for earnings growth.

Economic wild cards and key considerations

Of course, the path forward is not without risks. Markets are riding a mix of strong fundamentals and high valuations, a combination that has historically delivered both opportunity and vulnerability.

The health of the U.S. labor market and the path of Federal Reserve policy will be key to watch. Any signs of further softening in employment or abrupt policy shifts—related to personnel or rates—could ripple across global markets. Leading tech companies may be better positioned to withstand such an environment given their robust fundamentals.

Timing also presents a challenge. The innovative culture and strong free cash flow of U.S. tech titans make their long‑term prospects compelling. However, the sustainability of returns is uncertain, reinforcing the case for diversification and tactical exposure to value stocks.

A balanced approach

Ultimately, the case for value is not about abandoning tech. It’s about broadening the lens.

We’re cautiously optimistic over the next six to 12 months, with easing macro uncertainties and potential rate cuts offering support. Our Asset Allocation Committee has a neutral stance on U.S. growth versus value but favors non‑U.S. equities due to attractive valuations, policy catalysts, and improving earnings—especially in Europe and Japan.

Despite extended valuations, the allure of U.S. tech remains strong, with AI‑driven capex showing signs of monetization and creating momentum for growth. However, value is evolving, and it’s worth a closer look.

Investors should remain disciplined, balancing the potential rewards of value opportunities with the inherent risks of market volatility and global economic shifts.