As AI products become increasingly easy to replicate, markets are beginning to reprice "hard-to-replicate physical assets" such as power grids, pipelines, infrastructure, and long-term production capacity.
On February 24, Goldman Sachs Global Investment Research released a new report titled "The HALO Effect: Heavy Assets, Low Obsolescence in the AI Era," proposing that under the combined forces of higher real interest rates, geopolitical fragmentation, supply chain restructuring, and the wave of AI capital expenditures, the core pricing logic of the stock market is shifting from a "scalable, asset-light narrative" to "buildable, hard-to-replace physical capacity and networks." Goldman Sachs summarizes this shift as the "repricing of scarcity."
"Higher real yields, geopolitical fragmentation, and supply chain reconfiguration are pulling stock market leadership back toward tangible productive assets. The market is rewarding capacity, networks, infrastructure, and engineering complexity—assets that are costly to replicate and less susceptible to technological obsolescence."
What is HALO? Goldman Sachs refers to this type of company as HALO, which stands for the combination of "Heavy Assets" and "Low Obsolescence."
Heavy Assets: A business model built on a substantial base of physical capital, characterized by high replication barriers—such as cost, regulation, construction time, engineering complexity, or network integration difficulty.
Low Obsolescence: The economic relevance of these assets endures across technological cycles.
Typical examples include power transmission grids, oil and gas pipelines, utilities, transportation infrastructure, critical equipment, and various industrial capacity categories with replacement cycles that are slow relative to digital innovation. These assets are difficult to create from scratch. In an era of rapid digital technological advancement, the replacement cycle for such physical assets is extremely slow. Technological innovation cannot easily replace a transnational oil pipeline, nor can code substitute for a vast national power grid.
Goldman Sachs observes that companies are decisively returning to physical assets. Production capacity, infrastructure, and long-cycle assets are experiencing an unprecedented resurgence in value.
Why is the Asset-Light Myth Ending in the AI Era? Over the past decade, the zero-interest-rate environment and abundant liquidity following the global financial crisis fostered business models centered on scalability rather than physical capital. Technology stocks and asset-light industries enjoyed extremely high valuation premiums.
However, this balance has been disrupted. The rapid rise of artificial intelligence is exerting a powerful "dual pressure" on global equity markets.
Firstly, AI is disrupting the "new economy" model that dominated the past decade, making the "profit margins and terminal values" of some asset-light industries more uncertain. Goldman Sachs states bluntly: "The AI revolution is calling into question the profit margins and terminal values of software and IT services."
The report specifically names software, IT services, publishing, gaming, logistics platforms, and even the asset management industry, stating that their economic moats are being reassessed. Goldman Sachs expresses it plainly: "The recent significant devaluation of software and IT services is not due to short-term profit collapse, but rather the market repricing terminal value and margin durability—historically high profitability is now seen as more vulnerable to competitive erosion."
In other words, AI reduces information processing costs and compresses differentiation, leading the market to score future cash flows more cautiously.
Secondly, AI is reshaping the landscape of capital expenditure. Goldman Sachs points out: "AI is simultaneously turning some of the most iconic 'asset-light' winners into the largest capital spenders in history."
To maintain leadership in the foundational large model and computing power race, the five largest U.S. technology giants have embarked on an unprecedented investment cycle. Data shows that since the launch of ChatGPT in 2022, these giants' capital expenditures from 2023 to 2026 will reach approximately $1.5 trillion. In contrast, their total cumulative investment throughout their entire history prior to 2022 was only about $600 billion.
More strikingly, capital expenditure for these giants in the single year of 2026 is expected to exceed $650 billion. This means that spending in just one year will surpass their total historical investment before the AI era. This represents the largest and fastest capital expenditure cycle in the history of technology.
This signifies two things: firstly, "computing infrastructure" itself is a typical physical asset cycle; secondly, AI is not making the world lighter; instead, it is causing more industrial chains to benefit from the ability to "build, supply, and deliver."
As tech giants become "heavy asset" infrastructure enthusiasts, the market's belief in the superiority of "asset-light" models naturally wavers.
The Market is Tangibly Rewarding HALO Investors have a keen sense of smell. The performance difference between Goldman Sachs' constructed "Heavy Asset Portfolio" (GSSTCAPI) and "Light Asset Portfolio" (GSSTCAPL) provides the most direct market answer.
Data indicates that asset intensity has become a core driver of valuation and returns. Goldman Sachs reveals in the report: "Since 2025, our new Heavy Asset portfolio (GSSTCAPI) has outperformed the Light Asset portfolio (GSSTCAPL) by 35%."
This outperformance is not merely relative stock price fluctuation but a convergence of valuation logic.
In the early 2020s, due to the market viewing many old-economy companies as "structural value traps," the valuation of European growth stocks was once more than double that of value stocks, with a premium as high as 150%. But now, the valuation gap between heavy and light assets has narrowed sharply.
More noteworthy for investors is the manner of this valuation convergence. Goldman Sachs notes that the valuations of the two are now almost at the same level, but this convergence is "driven more by the valuation re-rating of heavy asset companies rather than a comprehensive de-rating of light asset companies."
Apart from weakness in some light asset sectors directly exposed to AI disruption risks, such as software, the overall market evolution path is that heavy asset companies have actively raised their valuations to meet the level of their light asset peers. This indicates that market capital is actively paying a premium for the resilience and strategic value of real economic assets.
How to Define "Heavy Assets"? Examining Six Core Metrics To accurately identify companies truly reliant on physical capital, transcending traditional industry classifications, Goldman Sachs abandoned single metrics and instead constructed a comprehensive "Capital Intensity Score" system comprising six indicators. This system profoundly reflects the market's new perspective on asset quality.
Tangible Asset Intensity (Net Physical Operating Assets / Sales): A higher value indicates a heavier physical base required to generate each dollar of revenue.
Fixed Asset Intensity (Plant, Property & Equipment / Sales): Reflects the degree of reliance on physical "bricks and mortar."
Fixed Asset Share (Plant, Property & Equipment / Total Assets): Reveals how much capital on the company's balance sheet is "locked" in long-term physical assets.
Capital-Labor Ratio (Tangible Assets / Number of Employees): Distinguishes whether the business is driven by machinery or labor-intensive tactics.
Capital Expenditure Intensity (Capex / Sales): Measures the proportion of annual revenue needed to maintain or expand the business.
Capital Expenditure Burden (Capex / EBITDA): Shows the extent to which operating cash profit is consumed by asset maintenance.
By scanning across these six dimensions, Goldman Sachs categorizes companies into distinct camps.
Utilities, basic resources, energy, and telecommunications unsurprisingly anchor the heavy asset camp. These industries are heavily regulated, have extremely high fixed capital requirements, and possess very long asset lives.
Conversely, platform businesses like software, IT services, internet, and media are firmly classified as light asset, human capital-intensive.
Interestingly, there is a "middle ground" in the market. Goldman Sachs finds that automobiles and aerospace are clearly heavy assets; however, due to brand assets, production process know-how, and long-term investment in craftsmanship, luxury goods and beverages also fall into the "low obsolescence" quality asset category. In contrast, consumer services, gaming, and most retailers are structurally light asset, with their economic lifeblood lying in labor and marketing rather than physical capital.
Resonance of Macro Tailwinds and Earnings Momentum Why are heavy assets surging at this particular moment? The answer lies in the dual resonance of macroeconomic indicators and corporate fundamentals.
On the interest rate front, heavy asset stocks tend to perform well during periods of higher interest rates. This is because high yields ruthlessly compress the valuations of long-duration, light asset growth companies. In contrast, heavy asset sectors tied to tangible production capacity can benefit from stronger nominal economic activity and government fiscal spending. Goldman Sachs mentions that current policy mixes are directing capital toward physical assets, "creating a structural tailwind for capital-intensive enterprises."
On the macro cycle front, the interplay between manufacturing and services is a key indicator. The fate of heavy asset sectors is closely linked to industrial production and capital expenditure cycles. Goldman Sachs observes that as manufacturing PMI (particularly the future business expectations component) recovers and surpasses services PMI, the macro backdrop is tilting back in favor of heavy asset industries.
Regarding earnings, which determine the long-term performance of the stock market, the fundamental balance has also tilted.
In the past cycle, light asset companies enjoyed prolonged valuation premiums due to consistently high profit growth. However, entering 2025, although heavy asset companies faced short-term profit disruptions from factors like trade friction and tariffs (as commodity producers and export-oriented businesses, they are far more affected by tariffs than service industries), the underlying trend is clear after stripping away short-term noise.
Goldman Sachs emphasizes: "The earnings momentum for heavy asset companies has recently turned positive, with consensus estimates being revised upward; whereas earnings expectations for light asset companies are being revised downward."
Looking forward, analyst consensus expects the heavy asset portfolio to achieve a compound annual growth rate (CAGR) for EPS of 14% over the next few years, compared to just 10% for the light asset portfolio. More critically, Return on Equity (ROE), the core metric that long supported the high valuations of light asset companies, is showing signs of weakness. The market currently expects ROE for light asset companies to remain flat, while ROE for heavy asset companies is anticipated to improve continuously.
Crowding of Capital: The Rotation to Heavy Assets Has Just Begun Given the clear logic and converged valuations, has this heavy asset rally run its course?
From the perspective of capital flows, it is far from over.
The recent leadership of heavy assets is closely related to the market's intense desire to exit crowded and expensive positions in "U.S. tech stocks." Over the past 12 months, European value funds have seen net inflows of 3%, while growth funds have experienced net outflows of 9%.
But Goldman Sachs pointedly notes that despite the sharp short-term rotation, long-term capital positioning remains very weak: "The cumulative net outflow from European value funds relative to growth funds still hovers around -40% of assets under management."
This means global investors remain severely underweight value stocks (the concentration of heavy assets). Based on this significant positioning gap, the structural logic for heavy asset stocks to continue outperforming light asset stocks remains robust.
In this era accelerated and reshaped by AI, the rapid advance of the virtual world is, ironically, making the steel, pipelines, and power grids of the physical world more precious than ever. Whether this marks a lasting change in market leadership or a rebalancing within the cycle, for investors, the "bulletproof" quality of physical capital is radiating an undeniable glow.