$70 Billion. 18 Straight Outperforming Years | David Giroux on the Index Trap and AI Hype

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Feb 7, 2026

David Giroux, CIO of T. Rowe Price and long-time manager of the Capital Appreciation strategy, shares market mapping from micro S&P 500 valuation to sector-level calls. He discusses exploiting structural inefficiencies, buying into drawdowns, where AI may help or hurt companies, and why utilities and healthcare look attractive. Conversations also cover fixed income positioning, margin drivers, and how to think independently in volatile markets.

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ADVICE

Seek Persistent Market Inefficiencies

Exploit persistent structural inefficiencies like GARP and double-B credit where natural buyers are absent.
Buy those pockets for higher return per unit risk instead of mirroring index allocations.

INSIGHT

Buy Into Fear For Better Forward Returns

When markets plunge, forward 12–24 month returns typically rise and downside risk falls.
David Giroux says disciplined buying during selloffs has repeatedly produced strong results for his fund.

INSIGHT

Micro Model The S&P—Not Just Shiller PE

Valuing the S&P 500 requires bottom-up analysis of all 500 companies and their mix, not lazy historical PE comparisons.
Giroux's team models five-year growth and multiples to derive a market fair value near ~19x earnings.

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David Giroux, CIO of T. Rowe Price and manager of the Capital Appreciation strategy, joins Excess Returns for a wide ranging discussion on market valuation, AI investing, Mag 6 dynamics, utilities, healthcare, fixed income, and how to think independently in volatile markets. David shares his framework for exploiting structural market inefficiencies, why market drawdowns can create opportunity, how he evaluates the S&P 500 at the micro level, and what investors are getting wrong about AI, profit margins, and the current cycle.

Main topics covered in this episode

• Exploiting structural market inefficiencies in GARP stocks, high yield, and double B credit
• Why market drawdowns often lower forward risk and increase expected returns
• Strategic equity allocation during periods of fear and volatility
• Rethinking S&P 500 valuation through 500 company bottom up analysis
• The changing composition of the index and its impact on profit margins
• Where the most overvalued and undervalued areas of the market may be today
• AI investing framework including Nvidia, AMD, cloud providers, and software risk
• How AI could reshape margins, labor productivity, and enterprise software
• Differences between today and the dotcom bubble
• Overweight positioning in utilities and healthcare and the thesis behind each
• Fixed income positioning including the belly of the Treasury curve and fiscal risk
• Commodities, gold, and fiscal sustainability
• Lessons for portfolio managers on independent thinking and making high conviction bets

Timestamps

00:00 Market drawdowns and forward returns
02:09 Exploiting structural market inefficiencies
06:28 Strategic equity allocation during selloffs
11:22 Is the market expensive and how to value the S&P 500
15:00 Profit margins and index composition
17:13 Where valuation excess exists outside the Mag 6
20:38 How to think about AI and enterprise adoption
27:18 AI disruption risk across sectors
39:20 AI versus the dotcom bubble
42:30 Apple versus Meta and capital allocation
46:53 Overweight utilities and healthcare
52:57 Fixed income opportunities and risks
57:32 Commodities, gold, and fiscal concerns
01:00:15 Lessons for new portfolio managers