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Growth Team Weekly Investment Insights

Last week, we walked through some of the macroeconomic data that are leading to market jitters. In this post, we walk through some of the investment implications so far this year.

First, a look at how US markets are performing. After being up as much as 4.5% in mid-February, the Russell 3000® Index is now down nearly 1% this year. And, after a prolonged period of growth outperforming value, the trend has flipped. The value index remains in positive territory with a return of 3.2%, while its growth counterpart is down 4.3%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Looking a bit closer at the growth versus value divergence, the table below shows the Russell 3000® Index performance based on next-twelve-month (NTM) PE ratio quintiles. Companies with NTM PE ratios >30X (the top two quintiles) have meaningfully underperformed the broader market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Much of this disparity can be explained by the YTD performance of the Magnificent Seven companies, which have generated an average return of -9%.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Looking at market performance by sector, it is not surprising to see information technology (NVIDIA and Microsoft) and consumer discretionary (Amazon and Tesla) sector weaknesses given the Magnificent Seven’s underperformance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Going through some of the highlights from the sectors:

Information Technology

The sector narrative continues to be driven by artificial intelligence (AI). One investor concern has been around large data center hyperscalers and their acceleration in cap ex plans as they race to build out AI capacity.

The total spending by Meta, Microsoft, Amazon and Alphabet increased to $217bn in 2024, and current expectations are for a total of $296bn in 2025. While AI promises growth, investors still don’t have a good handle on when all of this investment will be monetized and the eventual payback period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This spending should mean more compelling growth for companies in the AI supply chain, such as NVIDIA. The company reported 78% YoY revenue growth, while net income surged 80%. However, the impressive growth results were not enough to move shares meaningfully after the incredible performance run over the past couple of years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Looking beyond the AI supply chain beneficiaries, we were encouraged by trends among software companies implementing the technology to streamline operations. However, it still largely remains a “prove it” story.

For example, Salesforce spent much of its earnings call highlighting the excitement around its rollout of an AI-powered Agentforce offering. CEO Marc Benioff stated, “just 90 days after it went live, we already have 3,000 paying Agentforce customers who are experiencing unprecedented levels of productivity, efficiency and cost saving.”  

However, this is still a small part of the broader business and was not enough to buoy shares after the company reported earnings that trailed investor expectations.

Consumer Discretionary

Sector underperformance has been due to several trends. First, as we mentioned last week, several macroeconomic figures have shown signs of weakness, such as retail sales and credit card delinquencies, weighing on sentiment across many retail companies.

However, you can see that autos have been driving most of the weakness, especially Tesla, which posted earnings results that missed on the top and bottom lines after already disclosing the first annual decline in electric vehicle sales in more than a decade.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

However, another interesting data point is that the secular trend towards e-commerce is alive and well. After a prolonged period of prolonged stagnation following the COVID-19 environment, the percentage of US retail sales happening online just matched the all-time highs set in 2020.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health Care

Health care has been the second-best performing sector in 2025, following a prolonged period of underperformance in 2023 and 2024.

A lot has been happening with GLP-1 weight loss drugs. You may recall that the massive demand for these drugs quickly led to supply shortages. As a result, the FDA added them to its drug shortage list a few years ago. The FDA’s move opened the door to the legal sale of compounded alternatives—custom-made alternatives of FDA-approved drugs. Demand for these alternatives from companies like Hims & Hers was also huge. In Hims & Hers case, it offers a compounded semaglutide drug that aims to mimic the weight loss drugs from Novo Nordisk.

After being up as much as 184% this year, shares of Hims & Hers collapsed after the FDA removed its drug’s shortage status, which may mean the company can no longer offer it.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Along with value outperforming growth and the Magnificent Seven lagging the broader market, another market reversal this year has been the outperformance of non-US equities, with the MSCI AC World ex USA Index outperforming the MSCI USA Index by nearly 600bps so far in 2025.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

However, some trends remain in place. Among them, small caps continue to lag large caps with a YTD Russell 2000® Index return of nearly -6%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

While it came very close to recapturing highs at the end of 2024, the Russell 2000® Index remains in a drawdown that started in 2021, which is approaching the same duration as the GFC drawdown (July 2007 to February 2011)!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Artisan Growth Team manages portfolios that hold securities issued by Amazon, Alphabet, Apple and Novo Nordisk as of 12/31/24.  Portfolio securities are subject to change.