The market's new favourite asset: Potential

The market’s new favourite asset: Potential

Since April 2025, loss-making companies in the US Russell 2000 Index have returned roughly +60%. Profitable ones? About +38%. The market, in other words, is currently paying a premium to own companies with no earnings over those with real ones.

And this is not a niche corner of the index. By Apollo’s count, close to 42% of the Russell 2000 — nearly half its members — carries negative earnings, against roughly 14% for US mid-caps and just 6% for the S&P 500. Nearly half the index is losing money, and it is that half that has been leading the market.

This isn’t a rounding error. It is a deliberate choice by investors who are prioritising AI exposure and future growth optionality over present-day profitability — a preference that has, if anything, intensified through the most recent leg of the rally in 2026.

Before going further, it is worth understanding what the Russell 2000 represents. The index tracks roughly 2,000 small-cap companies in the United States. Unlike the S&P 500, which is dominated by large and established businesses, the Russell 2000 skews towards younger and often less profitable companies. For that reason, it is frequently read as a barometer of investor risk appetite.

Markets have been here before. In the late 1990s, and again during the liquidity surge of 2020–21, abundant capital and strong optimism encouraged investors to look past present earnings and pay up for future possibilities. Each episode looked different in the moment; each was, at its core, the same trade. For investors, the data is a useful reminder that markets do not always reward what is strongest today. Sometimes they reward what investors believe could become strongest tomorrow. Whether the current divergence marks the beginning of a new growth cycle or a passing phase of speculative enthusiasm remains to be seen.

The question worth asking today is not which unprofitable company has the best story. It is which profitable company the market has forgotten to notice.

 

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