Author: Chasing Wind Trading Desk
As AI products become easier to copy, the market begins to repricing “difficult-to-replicate physical assets” such as grids, pipelines, infrastructure, and long-term capacity.
On February 24, Goldman Sachs’ Global Investment Research published the latest report, “The HALO Effect: Heavy Assets, Low Obsolescence in the AI Era,” proposing that under the convergence of higher real interest rates, geopolitical fragmentation, supply chain reconstruction, and a wave of AI capital expenditure, the core pricing logic of the stock market is shifting from a “scalable light asset narrative” to “buildable, difficult-to-replace physical capacity and networks.”
Goldman Sachs summarizes this change as “re-pricing of scarcity.”
“Higher real yields, geopolitical fragmentation, and supply chain reconstruction are pulling market leadership back to tangible productive assets. The market is rewarding capacity, networks, infrastructure, and engineering complexity—these assets have high replication costs and are harder to be replaced by technology.”
What is HALO?
Goldman Sachs refers to these companies as HALO, which combines “heavy assets” and “low obsolescence,” or Heavy Assets, Low Obsolescence.
Heavy Assets: Business models are built on large physical capital bases with high replication barriers—such as costs, regulations, construction time, engineering complexity, or network integration difficulties.
Low Obsolescence: The economic relevance of these assets can persist across technological cycles.
Typical examples include transmission grids, oil and gas pipelines, utilities, transportation infrastructure, key equipment, and categories of industrial capacity that have slower replacement cycles compared to digital innovation.
Such assets are difficult to create out of thin air. In today's rapidly evolving digital technology environment, the replacement cycles for these physical assets are extremely slow. Technological innovations cannot easily replace a transnational oil pipeline, nor can they substitute a vast national grid with code.
Goldman Sachs observes that companies are decisively returning to physical assets. Capacity, infrastructure, and long-cycle assets are experiencing an unprecedented return of value.
Why is the light asset myth ending in the AI era?
For more than a decade, post-global financial crisis zero interest rates and ample liquidity have fostered business models centered on scalability rather than physical capital. Tech stocks and light asset industries have enjoyed very high valuation premiums.
However, this balance has been disrupted. The rapid rise of artificial intelligence is exerting powerful “dual pressure” on the global stock market.
First, AI is disrupting the “new economy” model that has dominated the last decade, making the “profitability and terminal value” of some light asset industries more uncertain. Goldman Sachs bluntly states: “The AI revolution is questioning the profitability and terminal value of software and IT services.”
The report names software, IT services, publishing, gaming, logistics platforms, and even asset management industries, stating their moats are being re-evaluated. Goldman Sachs expresses clearly: “Software and IT services have recently been significantly devalued, not because of short-term profitability collapse, but because the market is re-pricing terminal values and the durability of profitability—historically high profitability is seen as more vulnerable to competitive erosion.”
In other words, AI reduces information processing costs and compresses differentiation, causing the market to assess long-term cash flows more cautiously.
Second, AI is reshaping the landscape of capital expenditures. Goldman Sachs points out: “AI is simultaneously transforming some of the most iconic ‘light asset’ winners into the largest capital spenders in history.”
To stay ahead in the foundational model and computational power race, the five major tech giants in the U.S. have embarked on an unprecedented investment cycle. Data shows that since the release of ChatGPT in 2022, these giants’ capital expenditures (Capex) are expected to reach approximately $1.5 trillion between 2023 and 2026. In contrast, they invested only about $600 billion throughout their entire development history prior to 2022.
More strikingly, in the single year of 2026, these giants’ capital expenditures are expected to exceed $650 billion. This means that the investment for just one year will surpass their historical total before the era of AI. This is the largest and fastest capital expenditure cycle in tech history.
This signifies two things: First, “computational infrastructure” itself is a typical physical asset cycle; second, AI has not made the world lighter, but has instead allowed more industries to benefit from the capacity to “build, supply, and deliver.”
As tech giants become “heavy asset” infrastructure enthusiasts, the market's faith in the superiority of “light assets” is naturally shaken.
The market is rewarding HALO with real money
Investors have sharp instincts. The performance difference between Goldman Sachs’ “heavy asset portfolio” (GSSTCAPI) and “light asset portfolio” (GSSTCAPL) provides the most intuitive market answer.
Data indicates that asset intensity has become a core driver of valuations 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 about relative fluctuations in stock prices, but rather the convergence of valuation logic.
In the early 2020s, due to the market viewing many old economy companies as “structural value traps,” the valuations of European growth stocks were once more than twice those of value stocks, with a premium rate as high as 150%. However, now the valuation gap between heavy and light assets has sharply narrowed.
Investors should pay attention to how this convergence in valuation is happening. Goldman Sachs notes that the valuations of the two are currently almost at the same level, but this convergence “is more driven by the re-evaluation of heavy asset companies than by a general downvaluation of light asset companies.”
Apart from some light asset sectors directly exposed to AI disruption risks, such as software, which are showing fatigue, the overall evolution path of the market is that heavy asset enterprises proactively raised their valuations to align with those of their light asset counterparts. This indicates that market funds are actively paying premiums for the resilience and strategic value of physical economic assets.
How to define "heavy assets”? Examining six core indicators
To penetrate traditional industry classifications and accurately identify those that genuinely rely on physical capital, Goldman Sachs has constructed a comprehensive “capital intensity score” system, inclusive of six indicators. This system profoundly reflects a new perspective of the market in examining asset quality.
Tangible asset intensity (net tangible operating assets/sales): A higher value indicates a heavier physical base required to generate each $1 of revenue.
Fixed asset intensity (plant and equipment/sales): Reflects the degree of a company's dependence on physical bricks and mortar.
Fixed asset share (plant and equipment/total assets): Reveals how much of the company's balance sheet funds are “locked” in long-term physical assets.
Capital-labor ratio (tangible assets/number of employees): Distinguishes whether the business is machine-driven or reliant on manpower.
Capital expenditure intensity (Capex/sales): Measures the proportion of resources needed annually to maintain or expand business.
Capital expenditure burden (Capex/EBITDA): Shows the extent to which operating cash profits are consumed by asset maintenance.
Through the scanning of these six dimensions, Goldman Sachs categorizes companies into distinctly different camps.
Utilities, basic resources, energy, and telecommunications undoubtedly reside in the heavy asset camp. These industries are heavily regulated, have extremely high fixed capital requirements, and possess very long asset lifespans.
Conversely, software, IT services, internet, and media platform companies are firmly anchored in the light asset, labor capital-intensive classification.
Interestingly, there is a “middle ground” in the market. Goldman Sachs finds that while automotive and aviation are clearly heavy assets, luxury goods and beverages also fall into the “low obsolescence” high-quality asset category due to brand value, production know-how, and long-term investments in processes. In contrast, consumer services, gambling, and most retailers belong to structural light assets, whose economic lifeline is dependent on labor and marketing rather than physical capital.
Resonance of macro tailwinds and performance momentum
Why are heavy assets booming 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 high interest rates. This is because high yields ruthlessly compress the valuations of long-duration, light asset growth companies. In contrast, industries linked to tangible capacity can benefit from stronger nominal economic activity and government fiscal spending. Goldman Sachs mentions that today's policy mix is steering capital toward physical assets, “creating structural tailwinds 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 tied to industrial production and capital expenditure cycles. Goldman Sachs observes that as manufacturing PMI (particularly the future business expectations component) rebounds and surpasses services PMI, the macro backdrop is once again tilted in favor of heavy asset industries.
Moreover, at the earnings front, which determines the long-term performance of the stock market, the balance of fundamentals has also shifted.
During the past cycle, light asset companies enjoyed long-term valuation premiums due to continuously high profit growth. However, entering 2025, while heavy asset companies face short-term profit disturbances from tariffs and other trade friction factors (as commodity producers and export-oriented businesses, they are affected by tariffs far more than services), the trend has become clear after stripping away short-term noise.
Goldman Sachs emphasizes: “Heavy asset companies' profit momentum has recently turned positive, consensus expectations are being raised; whereas light asset companies' earnings expectations have been downgraded.”
Looking ahead, analysts’ consensus expectations suggest that the EPS compound annual growth rate (CAGR) of heavy asset portfolios will reach 14% in the coming years, while light asset portfolios will only be 10%. More critically, the core indicator that has long supported the high valuation of light assets—return on equity (ROE)—is showing signs of fatigue. The market currently expects the ROE of light asset companies to remain flat, whereas that of heavy asset companies is expected to continue improving.
Capital congestion: the rotation towards heavy assets is just beginning
Since the logic is so clear and valuations have converged, has the heavy asset trend come to an end?
From the perspective of capital competition, it is far from over.
The recent surge in heavy assets is closely related to market funds’ extreme desire to shake off the crowded and expensive “U.S. tech stock” positions. Over the past 12 months, European value funds experienced a net inflow of 3%, while growth funds faced a net outflow of 9%.
However, Goldman Sachs pointed out sharply that despite the intense short-term rotation, long-term capital positions remain very weak: “The cumulative net outflow of European value funds compared to growth funds is still hovering around -40% of assets under management.”
This indicates that global investors remain seriously underweight in value stocks (the concentration of heavy assets). Based on this immense positional gap, the structural logic of heavy asset stocks continuing to outperform light asset stocks remains solid.
In this era, accelerated by AI restructuring, the frenzy of the virtual world has made physical world elements like steel, pipelines, and grids more precious than ever. Whether this marks a lasting market leader replacement or a rebalancing in the evolution of cycles, for investors, the “bulletproof vest” properties of physical capital are radiating an undeniable brilliance.
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