Slok vs. Small Caps: Unprofitable Russell 2000 Names Up 60% — Apollo Says Pricing "Broken" 📉

Unprofitable Russell 2000 stocks have climbed roughly 60% since April 2025, outpacing the 38% gain posted by profitable small-cap firms, according to Apollo Global Management. Of the index's approximately 2,000 members, 806 carried negative trailing earnings late last year, Apollo data showed, while 1,120 were profitable — a 40% loss-making share that Apollo chief economist Torsten Slok first flagged in November 2023.

The rally traces to early April 2025, when small-cap stocks bottomed following the Liberation Day tariff shock. The Russell 2000 has since gained nearly 44% off that low, according to Royce Investment Partners, with micro-caps up about 66%. Small caps have pushed to fresh record highs across the index, and unprofitable companies are now leading the market.

Slok attributes much of the speculative bid to AI-related sectors. Most of the loss-making names are tech firms operating in software, semiconductors, and biotech, Slok told Fortune. Royce noted that semiconductor makers led the micro-cap leg of the advance. "Something is broken in price discovery when companies with negative earnings keep outperforming companies with positive earnings," Slok wrote in a June 20 note.

Not all strategists agree the move is irrational. Morgan Stanley's Lisa Shalett pointed out that small-cap firms carry a cost of capital above their return on assets, while Royce's Francis Gannon argued that many small caps are genuine suppliers to the AI buildout and that stronger small-cap earnings growth is expected in 2026. Slok has flagged the divergence since October, and the gap between profitable and unprofitable names continues to widen as cheap money and AI enthusiasm hold it open.