The Cash Flow Case for Value

LPL Research explores why value stocks are outperforming, how free cash flow drives returns, and the impact of AI spending on markets.

A regime in transition. Value has reasserted itself into the market’s psyche after a long period in which growth leadership felt permanent.

Growth’s run was the exception. Growth’s leadership since the 2010s was a relatively rare period, helped by falling rates, software multiple expansion, and the rise of asset-light platform companies.

Investors are repricing risk. However, markets are regime-sensitive, and the market regime appears to be shifting as investors have become more sensitive to technology valuations, AI-related capital spending, and the durability of free cash flow.

Cash generation over promises. This rotation is the market repricing the relative value of near-term cash generation versus long-duration earnings promises.

Value through a factor lens. Of course, “value” can mean different things. In our view, analyzing value as a factor is more instructive, and here, we contextualize recent value outperformance, analyze cash flow as a value factor, and connect these learnings to today’s dominant investment debate: the AI capital expenditures (capex) cycle.