Suddenly, "NVDA and chill" is no longer a soothing mantra.
Until a few weeks ago, online stock chat rooms were full of messages urging you to buy and hold Nvidia shares to get rich. Now, with the company's chief executive, Jensen Huang, resigning over a sex scandal and the chip maker's stock down by more than 30% since early October, some investors are fleeing the artificial-intelligence trade and looking for shelter.
One answer might be value stocks, the companies in the market's bargain bin. Unfortunately, you can't just buy any fund with "Value" in its name. This style of investing requires a deeper reservoir of patience than you might realize.
Value is a lifelong investment, not a temporary trade. Rushing out of AI into a value fund might not pay off as soon as recent results would suggest -- especially since many value funds remain dominated by such AI-adjacent companies as Amazon.com, Apple and Microsoft.
Here's why.
Value stocks have historically been defined as those with low prices relative to their book value, a measure of net worth. Some investors also define them as being cheap relative to earnings, sales or free cash flow.
It might seem obvious that using an antiquated measure like book value would result in minimal exposure to the market's hottest hope for the future. But many value funds are chock-full of AI-related stocks.
"The way we talk about 'value' is probably the biggest mistake Wall Street makes in broad daylight," says Thomas Cole, co-founder of Distillate Capital Partners, an investment firm in Chicago that manages $2.5 billion. Given the growing importance of such intangible assets as patents, trademarks, software and data, he says, "relying mainly on price-to-book-value in a world where at least half the S&P 500 is driven by intangibles doesn't make sense."
The makers of semiconductors, for instance, have invested massively in factories and production equipment, boosting their book value and often making them eligible for value indexes. But because these stocks have been riding the AI boom, they can be extravagantly expensive on other measures.
That has distorted popular benchmarks, such as the Russell 1000 Value Index. In the first 10 months of this year, that index's technology sector gained 88.5%, helping to power the benchmark to a 24.5% return. Over the same period, the Russell 1000 Growth index fell 0.2%.
That was the widest outperformance by value over growth in any comparable period since Russell created these indexes in 1987. Much of that gap was driven by such "value" stocks as data-storage device makers Micron Technology and Sandisk, which gained 305% and 858%, respectively, in the first six months of this year.
Formerly cheap as measured by book value, by mid-2026 Micron and Sandisk were at least three times as costly as the overall market based on price to sales, according to FactSet, and substantially more expensive based on price to cash flow.
Since the rebalancing of Russell's benchmarks in June, those two companies, along with other technology stars, have moved into the growth index -- just in time to catch the recent stumble in AI stocks. That, too, has made "value" look better.
These design quirks make it tricky to find a value fund that includes stocks that are cheap on several measures. (Russell is considering broadening its definitions to include additional criteria, says Catherine Yoshimoto, director of product management at FTSE Russell.)
Most of today's value stocks aren't much like the ones that grandma and grandpa used to own.
For decades, stocks that were book-value bargains outperformed. From 1927 through 2025, large U.S. value stocks returned an annualized average of 12.3%, compared with 10.2% for big growth stocks, according to Elroy Dimson, Paul Marsh and Mike Staunton of Cambridge University and London Business School. That excess return is called "the value premium."
What many advocates for value investing -- and I have been one myself for decades -- have never fully admitted is how fickle and unpredictable the value premium is.
Low price-to-book-value stocks have struggled for most of the past two decades. In the U.S. from 2008 through 2025, according to Dimson, Marsh and Staunton, value underperformed growth by 3.1 percentage points annualized.
In fact, the researchers report, value cumulatively underperformed growth stocks from the end of 1984 through year-end 2024, a stretch of four decades.
These numbers are stark reminders of how hard it is to say how long -- or even whether -- value's recent rebound will last. Even though value stocks have outperformed growth by roughly 15 percentage points since the AI trade peaked around Oct. 6, that edge could fade.
"We don't find any predictability in the value premium" in the shorter term, says Wes Crill, a vice president at Dimensional Fund Advisors, which manages $1.08 trillion. So trying to time this part of the market is pointless. But if you hold it long term, you will benefit from the upside when it arrives.
One possible shelter is small value stocks -- arguably the most neglected corner of the market and surely the most remote from the AI boom. Researchers have found that this segment tends to outperform broader markets over the long run.
A few exchange-traded funds in this area with low annual expenses are Vanguard Morningstar Small-Cap Value, Avantis U.S. Small Cap Value, Dimensional U.S. Small Cap Value Portfolio and iShares S&P Small-Cap 600 Value.
Just remember that cheap, little stocks constitute well under 5% of the total value of the U.S. stock market. But a smidgen of your money there could give you some extra peace of mind if AI stocks continue to stumble -- so long as you have the patience of a tortoise.
And if you own a broad market index fund and can stay put for the long term, hedging against a short-term AI collapse is probably more trouble than it's worth.