Vanguard warns value funds may retain big AI exposure

Vanguard is warning that moving into value funds does not necessarily reduce exposure to the artificial intelligence infrastructure boom. In commentary published October 21, research director Andrew Shuman highlighted Amazon and Microsoft as two of the Russell 1000 Value Index’s three largest holdings, despite their substantial data center spending.

The warning reflects a distinction between investment labels and underlying holdings. According to index provider FTSE Russell, growth and value have no universal definition, and competing benchmarks can classify the same company differently. A value designation therefore does not automatically separate a portfolio from large technology businesses.

Russell’s methodology combines book-to-price ratios with earnings growth forecasts and historical sales-per-share growth. Companies with mixed characteristics can have their market capitalization allocated between growth and value indexes, rather than belonging exclusively to one category. That approach allows familiar technology names to appear in both styles.

In its June 2026 reconstitution analysis, FTSE Russell assigned Amazon a 92% value classification, compared with 27% a year earlier. Microsoft shifted from entirely growth to an equal split between growth and value. Those figures describe index style allocations, not the percentage weights those stocks occupy in a fund.

The portfolio question sits within Vanguard’s broader distinction between AI’s economic promise and its investment returns. In July commentary, global head of capital market research Qian Wang said strong AI-related earnings could support elevated share prices in the near term. But substantial optimism was already embedded in markets, leaving uncertainty over future returns.

Wang also argued that businesses using AI could ultimately capture benefits without bearing the technology builders’ upfront investment costs. Vanguard’s June midyear outlook similarly identified U.S. value stocks and developed markets outside the United States as potential longer-term beneficiaries. That outlook anticipated a gradual spread of productivity improvements beyond the infrastructure supply chain.

There is a second complication, however: adopting AI does not guarantee higher profits. Shuman said competitive pressure could force businesses to pass savings to customers through lower prices. Whether efficiency improvements reach shareholders will depend partly on management, data infrastructure and durable competitive advantages.

The October commentary makes a case for reasonably priced active management to distinguish among infrastructure builders, adopters and emerging AI-enabled businesses. Vanguard also acknowledges that active strategies carry higher fees and can underperform comparable index investments. Its argument is an opportunity for stock selection, not a guarantee of superior returns.

What happens next depends on whether heavy investment produces sustainable earnings and how widely AI’s benefits spread. Vanguard’s midyear outlook warned that infrastructure suppliers could be vulnerable if spending slows, even while broader adoption creates opportunities elsewhere. For portfolios seeking that transition, the central distinction remains what companies own and earn—not simply whether their fund is labeled value.