The views expressed are those of Anchor Capital Advisors, LLC (“Anchor”) and are subject to change at any time. They are based on our proprietary research and general knowledge of said topic. The below content and applicable data are in support of our views on said topic. Please see additional disclosures at the end of this publication.
Executive Summary
- Value is reemerging from historic valuations, signaling a structural shift in leadership rather than a short-term rotation.
- Capital is gravitating toward the physical economy – businesses that produce, build, power, and finance – favoring cyclical and Value-oriented sectors in a capex-driven cycle.
- A multi-year capital investment supercycle – spanning defense, energy, infrastructure, and artificial intelligence (AI) buildout – structurally favors asset-intensive businesses.
- As AI disrupts asset-light models and liquidity tailwinds fade, durable, tangible businesses may see improving earnings resilience and multiple expansion.
The Reawakening of Value — And Why It Can Last
For more than a decade, we saw markets reward asset-light, long-duration growth. When capital is essentially free and rates near zero, earnings far in the future matter more than cash flows today. For years, a good story carried more weight in the market than balance-sheet discipline.
From our view, that environment no longer exists.
What we are seeing today is not a theoretical rotation or a contrarian setup – it is capital responding to a different economic reality. Inflation has proved more persistent, capital is no longer free, and governments and corporations alike are being forced to invest in the physical or real economy again.
When the cost of capital rises, fundamentals reassert themselves.
Value investing is often framed as “cheap stocks eventually getting less cheap”. That misses what’s happening now. The reawakening of Value is being driven by earnings power, asset scarcity, and cash flow durability – not just valuation gaps. [1]
We see capital moving toward businesses that make things, build things, power things, and finance real activity. Large capex plans – particularly around reshoring, and data centers – should benefit more cyclical and Value-oriented areas.
Chart 1: Russell 1000 Value Relative to Growth
Trailing 12-month returns through December 31, 2025
Source: eVestment Analytics, FactSet Financial Data and Analytics. Past performance is not indicative of future results. Inherent in any investment is the possibility of loss.
The Return of the Physical Economy
After years of underinvestment, we are seeing the physical economy coming back into focus. Capital-intensive industries that were largely overlooked during the asset-light growth era are now seeing sustained investment as economic and policy priorities shift.
This change is being driven by several powerful forces.
- Rebuilding global supply chains
Deglobalization has increased spending on defense, domestic manufacturing, and supply-chain resilience. Governments are prioritizing energy independence and national security, often through long-term programs and multi-year procurement commitments. These are not short-lived initiatives — they are secular trends. - Electrification is accelerating worldwide
The global energy transition requires significant investment in power generation, transmission, grid upgrades, storage, and supporting infrastructure. While U.S. policy momentum has moderated, Europe and China continue to deploy substantial capital toward renewable energy and grid modernization. Regardless of policy cycles, the need for reliable power remains a necessity. - Artificial intelligence is fueling a new wave of real-world investment
Artificial intelligence (AI) is often viewed as a digital trend, but its impact is also highly physical. The rapid buildout of data centers has created a capital cycle of its own, driving demand for semiconductors, power systems, cooling equipment, construction, materials, and industrial services. This spending directly benefits asset-heavy businesses across the Value spectrum. - Traditional infrastructure is catching up after decades of neglect
Roads, bridges, water systems, mining capacity, and agricultural infrastructure have been chronically underfunded for years. That backlog is now being addressed through large-scale fiscal programs and private capital investment, creating sustained demand across multiple industries.
Taken together, these forces may point to a prolonged investment cycle. We have previously written about the potential for a capital spending Super Cycle. What has become clearer is both its scale and its expected longevity. Physical infrastructure cannot be built quickly. These projects require long planning horizons, significant capital, and years to execute — and the amount of announced spending continues to grow.
This is not simply a short-term rebound. We view it as a structural shift that supports longer-lasting growth for many Value-oriented sectors. Companies tied to energy, industrial capacity, materials, housing, and critical infrastructure may experience stronger earnings growth than the market has historically assigned to them. At the same time, parts of the asset-light Growth universe could face slower growth as capital and policy priorities continue to evolve.
AI Disruption and the Repricing of Risk
AI is changing how work gets done, how information is accessed, and how software is used. That change does not affect all businesses equally.
The impact is most pronounced in asset-light companies whose products are information, workflows, or digital distribution. In many cases, competitive advantages that once seemed strong are proving less reliable as AI tools reduce switching costs, automate tasks, and lower barriers to entry.
By contrast, many asset-heavy businesses are insulated from this disruption. Their advantages are rooted in physical networks, regulated assets, scarce capacity, and infrastructure that is essential to daily economic activity. These are areas AI can enhance — but not replace.
Chart 2: Disruption Risk Classifications
Note, this is not a comprehensive list of all sectors within each category
Source: Robert A. Stanger & Co. Inc. [2] Sector allocations based on each fund’s disclosed top five industry concentrations.
- AI innovation supports investment in infrastructure
Artificial intelligence is accelerating change across the economy, reshaping how businesses operate, compete, and invest. While AI is often discussed as a driver of efficiency and innovation, it is also changing how investors assess risk — particularly as business models evolve and capital requirements rise.
As AI adoption expands, innovation is increasingly supported by physical infrastructure:
• Data Centers
• Power Generation
• Cooling Systems
• Specialized Equipment
Networks are now essential to scaling AI capabilities. This has made growth more capital-intensive and tied technological progress more closely to real-world assets. [3]
- AI as a replacement
AI disruption does not affect all businesses in the same way. In areas where products are primarily digital or information-based, AI can lower barriers to entry, automate workflows, and accelerate competition. Tasks that once required multiple software platforms can increasingly be handled through integrated AI-driven tools, altering long-standing competitive dynamics. - AI as a multiplier
At the same time, many businesses can use AI to strengthen existing operations. Companies with physical networks, regulated assets, or complex systems can deploy AI to improve efficiency, manage capacity, and enhance service reliability. In these cases, AI acts as a force multiplier rather than a replacement.
These effects are prompting investors to revisit assumptions about competitive advantage and earnings visibility. As business models change, greater attention is being paid to how companies invest, how quickly they adapt, and how effectively they convert innovation into sustainable cash flows.
Valuations reflect how confident investors are in future earnings. When competition intensifies, capital requirements rise, or the path to profits becomes less certain, the market responds with a repricing of risk, demanding higher returns and lower valuations. When earnings visibility improves and execution strengthens, perceived risk declines and valuations can recover.
Chart 3: Valuation Spreads are at a Historical High
As of December 31, 2025
Source: FactSet Financial Data and Analytics
In our view, AI is not just an innovation story — it is a catalyst for a broader repricing of risk across the market. Understanding how disruption interacts with capital investment, operational resilience, and execution is becoming central to evaluating long-term opportunity.
We believe this repricing increasingly favors businesses grounded in real assets, essential services, and dependable cash flows.
Structural Headwinds for Public Growth
Two longer-term dynamics further distinguish today’s environment from the last decade and help explain why risk is being reassessed across parts of the public Growth market.
- The policy backdrop may be less supportive of long-duration assets
Monetary policy also appears to be entering a new phase. The appointment of Kevin Warsh signals a potential shift in tone around liquidity and balance-sheet expansion. Warsh has long expressed concern about prolonged monetary accommodation and the unintended consequences of sustained stimulus. If policy support becomes more measured than it was in the post-GFC era, assets that rely heavily on distant future earnings may face a less favorable environment. - Innovation is increasingly occurring in private markets
Many of the most disruptive AI companies remain privately held, which means public Growth portfolios tend to be concentrated in established market leaders. As more innovation happens outside public markets, sustaining prior growth rates may become more challenging, leading investors to reassess long-term expectations and risk.
Together, these dynamics do not diminish the importance of innovation. Rather, they highlight how the sources of growth — and the risks surrounding it — are evolving. As capital becomes more selective and innovation paths shift, investors are placing greater emphasis on visibility, execution, and resilience.
Understanding these structural changes can be essential to building balanced portfolios that can participate in innovation while managing risk across cycles.
The Market Is Already Adjusting
Recent market activity suggests the shift underway is no longer theoretical — it is beginning to show up in prices.
Performance differences across styles have widened as investors reassess where earnings visibility and capital deployment are strongest. [4] Parts of the software and digital economy have experienced increased volatility as expectations reset, while more speculative areas have seen sharper swings as risk appetite normalizes. [5]
At the same time, companies tied to the physical economy have benefited from improving fundamentals. Industrial, energy, and materials businesses are seeing stronger demand alongside rising capital spending, reflecting the renewed focus on production, infrastructure, and real-world investment.
Policy and global developments may continue to support this broader rebalancing. Deglobalization is translating into tangible investment across defense, energy, semiconductors, pharmaceuticals, and critical infrastructure. Electrification and AI-related buildouts are increasing demand for industrial inputs. A softer U.S. dollar, if sustained, could further support commodity and export-oriented businesses.
These developments point to more than a short-term rotation. They reflect a broader recalibration in how capital is allocated and how risk is evaluated. Investors are placing greater emphasis on earnings visibility, balance-sheet strength, and the ability to earn returns on invested capital through a full cycle. [6]
The prior decade was shaped by abundant liquidity, rapid innovation, and the growth of asset-light business models. The next decade may be defined by a more balanced market — one that continues to reward innovation while placing renewed value on execution, resilience, and disciplined capital investment.
Market shifts rarely announce themselves at the outset. But when extended valuation extremes meet structural change, adjustments can unfold over extended periods. We believe that process is underway, and that Value investing is reasserting its relevance as part of a more diversified and resilient market environment.
What This Means for Portfolios
As market leadership broadens and fundamentals matter more, portfolio balance becomes increasingly important. Relying too heavily on a narrow set of growth drivers may increase volatility as conditions evolve.
Complementing Growth-oriented allocations with exposure to companies tied to real economic activity — businesses with tangible assets, visible demand, and disciplined capital allocation — can help improve resilience across market cycles.
At Anchor, we are optimistic that this environment favors thoughtful diversification and long-term fundamentals, positioning portfolios to participate in opportunity while managing risk as the market continues to adjust. Hallmarks of our investment philosophy for over forty years.
[1] FactSet Financial Data and Analytics
[2] Founded in 1978, Robert A. Stanger & Company is an investment banking firm specializing in providing investment banking, financial advisory, fairness opinion and asset and securities valuation services to partnerships, real estate investment trusts, and real estate advisory and management companies in support of strategic planning and execution, capital formation and financings, mergers, acquisitions, reorganizations, and consolidations.
[3] McKinsey & Company. The AI infrastructure challenge: Scaling compute, networks, and power to meet rising demand.
[4] eVestment Analytics
[5] Ibid.
[6] FactSet Financial Data and Analytics
The views expressed are those of Anchor Capital Advisors, LLC (”Anchor”) as of the date written and are subject to change at any time. Anchor does not undertake any obligation to update the information contained herein as of any future date, nor does it have liability for decisions based on this information. Certain information (including any forward-looking statements and economic and market information) has been obtained from sources we deem reliable, but is not guaranteed by Anchor, nor is it a complete summary of available data. This publication has been prepared by Anchor Capital Advisors, LLC (Anchor). The information is for educational purposes only and should not be considered investment advice or a recommendation of any particular strategy or investment product. These opinions are not intended to be a forecast of future events or a guarantee of future results. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of Anchor. Past performance is not guarantee of future results. Inherent in any investment is the possibility of loss. The benchmark returns include in reinvestment of income. Time-weighted portfolio returns are calculated for each monthly period in the prior quarter. Quarterly results are linked to determine annual returns. Individual client portfolio results may vary from the results presented for the model because of different investment objectives, tax status and other considerations. Returns of individual client accounts will be reduced by advisor fees and other expenses which might be incurred to provide investment management, custody, administrative, actuarial, accounting or other services to the client. A complete list of each security that contributed to performance is available upon request.