Value funds surge 43% on accidental chip stock bets

Value investing's 2026 comeback owes more to chip makers riding the AI boom than to any genuine rotation into beaten-down bargains.

The iShares MSCI USA Value Factor ETF, ticker VLUE, has returned 43 percent year-to-date — four times the S&P 500's gain. But the $10 billion fund's outperformance is largely an accident of its construction: chip maker Micron Technology made up nearly a quarter of the portfolio at midyear, riding the AI infrastructure buildout rather than any value re-rating.

"The classic value thesis is out-of-favor, low-multiple stocks re-rating," said Tobias Carlisle, founder of Acquirers Funds, which picks stocks based on fundamental research. If earnings surge for a cyclical stock such as Micron, a huge beneficiary of the AI build-out, then it temporarily looks very cheap. Quantitative screens include it based on a formula, boosting concentrated funds like VLUE "almost by accident," he said.

The pattern extends beyond dedicated value funds. Vanguard's Value ETF, which tracks a CRSP value index, returned 16 percent year-to-date, lifted by top-10 holdings Micron, Intel and Cisco Systems. Even emerging-market indexes have been reshaped by the chip boom. Taiwan Semiconductor Manufacturing, Samsung Electronics and SK Hynix alone made up more than 30 percent of MSCI's widely followed emerging-market index at midyear. Prosperous, modern South Korea and Taiwan now constitute half the benchmark, while more populous developing nations such as India, China, Brazil and Mexico all trail the index.

The distortion highlights a growing tension in passive investing: index definitions of "value" and "growth" are based on backward-looking metrics that can produce counterintuitive results when cyclical earnings surge. A stock like Micron, whose earnings have exploded on AI-driven demand for memory chips, screens as cheap on trailing multiples even as its share price hits records. That pulls it into value indexes by formula, not by philosophy.

The S&P 500 has gained roughly 11 percent year-to-date, with the benchmark's strongest quarterly performance in six years coming in the second quarter as markets increasingly priced an AI-driven growth breakout. The U.S. 10-year Treasury yield stood at 4.48 percent last week, while the tech-heavy Nasdaq 100 has been the primary vehicle for AI exposure, with SpaceX joining the index this week.

Technology stocks' share of the U.S. equity market has climbed to 37.5 percent as of May 31, surpassing levels seen during the late-1990s internet bubble, according to Morningstar data. The concentration risk has prompted some investors to rotate into value and emerging-market funds as a diversifying bet — only to find those funds increasingly mirror the same AI-driven dynamics they sought to escape.

For investors who chose value or emerging-market funds because they had trailed large-cap U.S. growth stocks in recent years, the gains are real. But the composition of those funds warrants scrutiny. VLUE's 43 percent return is powered by a single cyclical semiconductor name, not a broad rotation into cheap stocks. Similarly, the MSCI EM index's 2026 performance is dominated by three Asian chip makers, not the broad-based developing-world recovery many investors may have intended to capture.

"Gains are gains," Jakab wrote. But "luck is an inconsistent investing strategy." Investors may want to examine whether their value or emerging-market exposure reflects the thesis they intended — or just the accidental byproduct of an AI boom that has reshaped every corner of the index world.

This article is for informational purposes only and does not constitute investment advice.