A market near record highs combined with a sharp tech sell-off and persistent questions about an AI bubble has made many investors cautious, especially against a geopolitically unstable backdrop. Julian Koski, chief investment officer at New Age Alpha, takes the opposite view: His firm’s model sees an unusually low 28% median probability that S&P 500 companies will fail to deliver the growth embedded in their stock prices. He says that result supports staying invested, even though it does not eliminate the risk of short-term declines. Koski, who co-founded New Age Alpha, sat down with TheStreet’s Caroline Woods to explain the reasoning behind his optimism. Koski’s argument is less a call to ignore risk than a different way of defining it. He focuses on the gap between the growth a stock’s price appears to require and the growth the company has delivered historically. In his framework, the danger is not simply that a company is labeled a growth stock, a value stock, or a supposedly safe stock. The danger comes when investors have pushed a price so high that the business is unlikely to meet the expectations embedded in it. That leads Koski to a practical conclusion for diversified, long-term investors: He would put fresh money into the S&P 500 rather than wait for a cleaner entry point or try to trade every headline. His framework also offers a useful way to separate a broad-market decision from a decision about any one company. Here is how Koski’s method works, where it produces counterintuitive answers, and what investors should watch before treating a market pullback as either a buying opportunity or a warning. How implied growth changes the valuation question Koski begins with a simple premise: A stock price carries an expectation about the growth investors believe the underlying company can produce. He calls that expectation the implied growth rate. His next step is to compare that rate with the company’s own recent record, using its median growth over the past 12 quarters. The wider the gap between a demanding implied growth rate and a weaker historical record, the greater the risk that the company will disappoint investors, in his view. New Age Alpha expresses that judgment as a failure probability, its estimate of the odds that a company will not deliver the growth implied by its current stock price. A lower number is better in the firm’s framework. Koski repeatedly stressed that even a company with favorable odds can miss expectations, while a company with unfavorable odds can still work out. It comes down to one thing. Can the company deliver the growth implied by its stock price. Julian Koski, when asked why he rejects the usual value-versus-growth labels Koski’s formulation challenges the conventional habit of treating a high price-to-earnings multiple (or a growth-stock label) as a complete valuation verdict. He argues that a company may look expensive on a traditional measure and still have a manageable hurdle if its operating growth has been stronger than the growth its stock price requires. Conversely, a company with a defensive reputation can become risky if its price reflects a story the business has not historically supported. The approach is most useful as a question rather than as a shortcut: How much growth does the current price appear to demand, and how does that compare with the company’s actual record? Investors cannot calculate New Age Alpha’s proprietary score from the interview alone, but the question helps explain why Koski reaches different conclusions from investors who begin with sector labels or headline valuation ratios. Why Nvidia and Alphabet pass Koski’s test NVIDIA illustrates the comparison. Koski said Nvidia’s stock price implied a 68% growth rate, while its median historical growth rate over the prior 12 quarters was 78%. New Age Alpha assigned Nvidia a 31% failure probability, meaning a 31% estimated chance that the company would fail to meet the growth required by its price. Koski viewed those odds as favorable enough to support owning the stock. Alphabet Inc. produced an even more striking result in his model. Koski said Alphabet had a 3% probability of failing to deliver the growth implied by its stock price because the implied rate sat well below the company’s historical growth over the preceding 12 quarters. His conclusion was conditional in an important way: Until there is evidence that Alphabet can no longer produce that level of growth, he would continue to own it. The distinction matters because the method does not require a company to be flawless. It asks whether the market has set a bar that it can plausibly clear. Nvidia’s reported 31% failure probability was higher than Alphabet’s reported 3%, but Koski still considered both acceptable. The number is meant to rank risk, not divide stocks into a simplistic good-or-bad list. Koski applied the same reasoning to Meta Platforms, Tesla, Netflix, and Apple. He said Meta could experience substantial price volatility around earnings while still remaining attractive on a fundamental basis. He said Tesla’s price implied growth it could deliver, and he said Netflix’s prior post-earnings declines did not, by themselves, overturn his view that the company’s fundamental odds remained favorable. He put Apple’s failure probability at about 34%, a level he described as low enough to continue owning, even if Alphabet and Meta scored better in his framework. Why a falling stock can become more attractive One of the more counterintuitive implications of Koski’s approach is that a falling share price can improve an investment case. When a stock falls, he said, the implied growth rate falls with it. A company then needs to produce less growth to justify its lower price. That does not make every declining stock a bargain, but it can reduce the expectations hurdle that made the stock unattractive at a higher price. Koski summarized the principle with an intentionally blunt contrast: A good stock at a bad price can be a bad investment, while a bad stock at a good price can be a great investment. The key is price discovery, the market process through which a lower price can eventually bring expectations closer to a company’s underlying performance. Investors considering an averaging-down decision would still need to assess whether the business can meet the revised expectations, rather than assume that a lower price alone settles the question. Tesla shows why the distinction between price and narrative can be difficult. Koski called Tesla both a company his firm already owned and a stock investors should approach carefully when considering a new purchase. He said that vague and ambiguous information surrounding Tesla, including hype associated with Elon Musk and the broader market, can drive the share price in ways disconnected from its fundamentals. When asked to reconcile those positions, he said he would hold his existing position but would not take a new one immediately; he would consider adding one after an earnings-related pullback. Why sector rotation and safety trades can mislead investors Koski’s skepticism extends to sector rotation, the practice of moving money between broad industry groups in response to changing market leadership. He argues that the strategy treats all companies in a sector as though they share the same investment case. In his view, that is a shortcut that can obscure the important difference between a company whose price reflects achievable growth and one whose price has run too far ahead of its business. His examples included Microchip and Kimberly-Clark. Koski said Microchip’s price had moved beyond the growth the company had historically delivered. He said Kimberly-Clark showed how a safety trade can create a different kind of risk: Investors may seek perceived stability during a technology sell-off, but the stock price can become disconnected from underlying fundamentals if too much optimism is placed on the defensive narrative. Alpha today doesn’t come from picking winners. It comes from avoiding losers. Julian Koski, when asked why investors should analyze individual S&P 500 companies Koski’s point is not that sector analysis is useless or that every defensive company is overpriced. His point is that a sector label does not establish whether the price is justified. A concentrated portfolio built around a popular market theme can create concentration risk, causing too much of an investor’s return to depend on a single industry or part of the market. A defensive basket can carry its own concentration risk if investors crowd into the same perceived refuge. Why Koski still prefers the S&P 500 for fresh money Despite his focus on individual company probabilities, Koski does not think most investors need to build a portfolio from individual names. Asked where he would put a new $10,000, he said he would invest immediately and direct it to the S&P 500. His reason was diversification, meaning the investor owns a broad collection of companies rather than relying on the outcome of a handful of stock-specific calls. I would continue to invest in the S&P 500. Julian Koski, when asked where he would put a fresh $10,000 Koski acknowledged that an S&P 500 fund includes companies he would prefer to avoid. But he said a broad fund still addresses the central problem created by uncertainty: Even a stock with a very low failure probability can fail to meet expectations. The S&P 500 does have concentration risk because its largest companies carry substantial weight, yet Koski argued that investors can accept that exposure rather than try to solve it automatically through equal-weight investing, which gives every constituent the same portfolio weight. He questioned whether concentration should always be treated as a defect. Alphabet, Meta, Amazon, and other globally dominant companies may reflect a different economic structure than earlier versions of the index, he argued. That is a judgment call, not a guarantee that an equal-weight S&P 500 strategy will underperform. Koski’s stated view is that switching solely because investors are worried about concentration could lead to underperformance at some point. For long-term, buy-and-hold investors, Koski’s preference for the S&P 500 is also a reminder to separate a market allocation decision from a stock-selection exercise. His firm can analyze individual companies to identify potential losers, but he still sees broad diversification as necessary because probabilities remain probabilities. An investor who does not have a process for evaluating implied growth may find a broad index fund more consistent with that uncertainty than a collection of conviction-driven stock bets. What could change the case for staying invested Koski is bullish, but his approach has an exit test. New Age Alpha was positioned 80% in stocks and 20% in bonds at the time of the discussion because its economic, market-momentum, volatility, and Federal Reserve signals were positive. He said the portfolio allocation would change if those indicators changed, with leading economic indicators, or LEI, carrying the most weight in his assessment. LEI refers to a set of economic indicators designed to signal shifts in underlying economic conditions. Koski said investors should watch for a sustained deterioration in the LEI rather than overreact to a single negative monthly reading that reverses the following month. He views the VIX, a measure of expected stock-market volatility, and market momentum as more influenced by human behavior. He described Fed policy as comparatively reactive because, in his view, the other signals tend to shift before the Federal Reserve makes a decision. That hierarchy explains why Koski distinguishes a fundamental sell-off from a behavioral one. He cited the 2008 financial crisis as a period marked by a fundamental problem that required greater care. By contrast, he said a decline that is primarily driven by investor reaction can produce a V-shaped recovery, a sharp fall followed by a quick rebound. The difference cannot be known simply by looking at a red day in the market, which is why he puts more weight on sustained changes in economic indicators than on a single news-driven move. His unwillingness to forecast an AI bubble follows the same logic. Koski did not say AI cannot become a bubble. He said no one knows in advance whether it is one, and that confident price forecasts amount to a form of gambling. His preferred response is to examine the company-specific expectations in the stock price, while recognizing that financing risks, changing narratives, and market reactions can still create losses. The takeaway for S&P 500 investors near market highs Koski’s conclusion is deliberately unfashionable in a market filled with warnings about stretched valuations: He sees the S&P 500 as relatively undervalued through New Age Alpha’s probability-based lens. That conclusion rests on his firm’s model and its interpretation of historical growth, not on a claim that prices cannot fall. Investors should treat it as a framework for testing expectations, rather than as proof that every high-profile technology stock is safe. A useful decision procedure starts with the role of the money. Long-term, buy-and-hold investors who want broad exposure may find Koski’s S&P 500 preference more relevant than his individual stock calls. Investors considering a single company can ask whether the current price appears to demand growth that the company has shown it can deliver, and can resist treating a sector label, a recent earnings reaction, or a safety narrative as a complete answer. Finally, risk management requires watching for evidence that the economic backdrop has changed. In Koski’s view, sustained weakness in leading economic indicators would matter more than a day of market turbulence or an alarming forecast. Koski’s central test is demanding but clear: Focus on whether a company can meet the growth expectations already embedded in its share price. For investors who prefer broad diversification, his own answer is simpler still: Own the S&P 500, monitor the economic evidence, and avoid letting every unsettling market narrative dictate the next portfolio move. Some or all of this content may have been generated by AI. While we strive for accuracy, AI can occasionally produce incorrect information. If you buy something via one of our links, we may earn a commission.
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