AI Sparks 13% Global Capital Expenditure Growth! Goldman Sachs Revives HALO Trade: Heavy-Asset Stocks Enter Second Phase of Super Cycle

The trend of heavy-asset stocks outperforming light-asset counterparts has persisted for over a year and is now reaching a critical turning point. Goldman Sachs' European equity strategy team released a new report on Tuesday (7th), stating that the first phase of the HALO trade—representing 'Heavy-asset, Low Obsolescence'—focused on 'valuation repair,' has largely concluded. The market is now entering a second phase driven by 'profit realization,' meaning that while these stocks were previously bought for being 'cheap,' their prices will now be supported by actual earnings power.

Goldman Sachs' constructed HALO paired trade—going long on heavy-asset stocks such as industrials, energy, and utilities, while shorting light-asset stocks like software and services—has risen approximately 20% year-to-date.

Although initial U.S.-Iran geopolitical tensions caused heavy-asset stocks to temporarily retreat by 7%, the decline quickly rebounded, and current levels are now about 2% higher than before the conflict.

Goldman's analysis indicates that the U.S.-Iran conflict has actually strengthened the underlying logic of HALO. The narratives of energy security and industrial autonomy have become increasingly clear, directly benefiting oil and gas (about 10% of the basket) and utilities (about 10%). Infrastructure sectors have demonstrated resilience through inflation-linked mechanisms, while aerospace and defense stocks (about 10% of the basket) have underperformed expectations. Goldman attributes this to profit-taking after four consecutive years of strong gains but maintains a medium-term optimistic outlook.

Data shows that heavy-asset stocks currently have a 12-month forward P/E ratio of about 14.5x, narrowing significantly from the 16x of light-asset stocks, signaling the end of the first phase of valuation re-rating. However, Goldman insists the story is far from over.

First, the capital expenditure-to-sales ratio is at multi-year highs, and historical data shows a positive correlation with the relative valuation of heavy-asset stocks. Second, high interest rate environments suppress light-asset stocks, which rely on distant future cash flows for pricing, while the AI wave increases uncertainty about the durability of their business models. Third, in high-inflation environments, the book value of heavy-asset companies may underestimate the actual replacement cost of their assets.

A more critical shift lies in earnings momentum. In the past, light-asset companies consistently led in EPS growth, but this dynamic is now reversing. Year-to-date, heavy-asset stocks have received the strongest positive EPS revisions among all European baskets, while light-asset stocks are near zero or slightly negative. Market consensus expects heavy-asset EPS growth to reach 15% to 16% this year, compared to about 10% for light-asset stocks—the first such occurrence in years.

Goldman explains: 'The next phase doesn’t require further valuation expansion, or even significant earnings upgrades. It just needs delivery.' This implies increased stock divergence, where only companies that meet earnings expectations will outperform the market.

The core supporting logic for HALO is a rare-scale global capex expansion. Global capital expenditure is projected to grow about 13% by 2026, far exceeding the historical median of 2%. Expectations for 2027 are also being revised upward, with the capex-to-sales ratio reaching multi-year highs, reversing a decade of underinvestment.

Currently, this cycle is highly concentrated in four areas: data centers, semiconductors, utilities, and defense, expected to account for over 40% of total global capex in 2026 (up from 25% in 2022), while traditional sectors like chemicals and construction equipment remain relatively weak.

This concentration itself is a structural signal—AI investment, energy transition, and reindustrialization are the core drivers, not merely inventory restocking.

HALO is not unique to Europe. Goldman observes consistent patterns across the U.S., Asia-Pacific, Japan, and emerging markets: since 2022, heavy-asset stocks in Asia-Pacific have surged 112% (light-asset down 15%), U.S. heavy-asset up 71% (light-asset up 25%), European heavy-asset up 92% (light-asset down 2%), and Japanese heavy-asset up 37% (light-asset down 7%).

The difference lies in the U.S. market, where light-asset stocks—especially large-cap tech—have a much higher weight than in other regions, partly explaining the strength of non-U.S. markets this year. This also suggests greater re-rating potential for HALO in markets with lower light-asset weight.

From a capital flow perspective, although European value funds saw net inflows of about 3% of AUM over the past 12 months, growth funds experienced outflows of about 15% (EPFR data). However, the cumulative flow of value funds relative to growth funds remains at a historical low of around -30%, indicating that long-term under-allocation is far from repaired.

Goldman’s favored heavy-asset themes center on five areas: infrastructure with hard-to-replicate assets like power grids and pipelines; basic materials controlling core resources; aerospace and defense with specialized manufacturing and geopolitical demand; manufacturing and consumer platforms with large-scale production networks; and the physical layer of technology underpinning the digital economy (semiconductor equipment, telecom networks).

Goldman concludes: 'Light-asset won’t disappear, but its status as an “uncontested winner” has been shaken.'

The biggest change in the AI era is declining investor confidence in 'terminal value.' Heavy-asset firms are converting capital intensity into a moat against disruption by leveraging scarce physical assets, high entry barriers, and limited technological obsolescence risk. In sectors with extremely low supply elasticity and multi-year lead times for new capacity—such as power and semiconductor equipment—the pricing power and earnings visibility of existing assets are steadily increasing.