Wall Street's Growth Stocks Have a New Problem: Value Stocks Are Getting More Expensive
Surbhi Jain 5 hours ago
ETFsBroad U.S. Equity ETFsEquities
A rare 2028 valuation shift has put Russell 1000 Value stocks at a premium to Growth stocks as investors question AI spending returns.
Wall Street has spent years paying a premium for companies expected to deliver the fastest growth. Now, one unusual valuation measure suggests that relationship may have flipped. Stocks classified as value are trading at a higher multiple than growth stocks, raising questions about what investors are paying for future earnings.
John Belton, portfolio manager at Gabelli Funds, flagged the shift in recent market commentary. On a 2028 price-to-earnings basis, the Russell 1000 Value Index is now trading at a premium to the Russell 1000 Growth Index. This is the first time that has happened, Belton said, in comments shared with Benzinga over email.
Investors can follow the comparison through the iShares Russell 1000 Value Index Fund (NYSE:IWD) and the iShares Russell 1000 Growth Fund (NYSE:IWF), which track the respective indexes. The 2028 P/E ratio compares current share prices with forecast 2028 earnings, rather than trailing profits, and is not a widely cited valuation measure.
The comparison also does not mean value stocks are more expensive under every metric.
A Strange Shift in Market Leadership
The comparison comes as investors question whether the biggest growth companies can turn heavy investment into returns. Belton said technology companies have delivered strong operating results this earnings season. More than 80% of S&P 500 technology companies beat sales estimates, while roughly 95% topped earnings expectations.
Cloud demand has remained robust.
- Microsoft Corp‘s (NASDAQ:MSFT) Azure accelerated for a third consecutive quarter and was guided to accelerate again in the December quarter.
- Amazon.com Inc (NASDAQ:AMZN) offered an unusually confident outlook for growth of more than 40% in each of the next two years.
Yet all three stocks fell after reporting, Belton noted. That disconnect points to a market focused not just on earnings beats, but on how much companies are spending to sustain growth and when that spending will pay off.
Growth Has to Prove Its Price
Hyperscalers reiterated, rather than raised, their capital expenditure outlooks this earnings cycle. Still, investors remain concerned about investment levels and payback periods. Alphabet, Amazon and Meta Platforms Inc. (NASDAQ:META) have turned free-cash-flow negative, while Microsoft remains free-cash-flow positive, according to Belton.
That pressure may help explain why the traditional growth premium is looking less secure. Investors want evidence that AI infrastructure spending can generate durable revenue and profits, rather than simply expand capacity. Belton pointed to Anthropic and OpenAI as examples. These AI-native businesses are demonstrating economic value from the infrastructure buildout, but the market wants more proof, he said.
For investors comparing the two styles, IWD and IWF offer a way to track the respective baskets, but neither ETF is a pure bet on the valuation gap. The unusual 2028 comparison is not, by itself, a signal to abandon growth stocks or chase value.
It is a reminder that a growth label does not guarantee a premium. Investors may be reassessing how much they will pay for earnings that still have to materialize. For growth stocks, the next test may be less about the promise of expansion and more about showing that today’s spending can deliver returns.
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