Author of the article: Long Yue
As AI products become easier to replicate, the market is beginning to reprice &#34;hard-to-replicate physical assets&#34; such as power grids, pipelines, infrastructure, and long-term capacity.
On February 24, Goldman Sachs' Global Investment Research Department released a report titled &#34;The HALO Effect: Heavy Assets, Low Obsolescence in the AI Era,&#34; which suggests that under the combined effects of higher real interest rates, geopolitical fragmentation, supply chain restructuring, and a wave of AI capital expenditure, the core pricing logic of the stock market is shifting from &#34;expandable light asset narratives&#34; to &#34;constructible, irreplaceable physical capacity and networks.&#34;
Goldman Sachs summarizes this change as &#34;repricing of scarcity.&#34;
<blockquote>
&#34;Higher real yields, geopolitical fragmentation, and supply chain restructuring are pulling stock leadership back to tangible productive assets. The market is rewarding capacity, networks, infrastructure, and engineering complexity—these assets have high replication costs and are also less likely to be eliminated by technology.&#34;
</blockquote>
<h2>What is HALO?</h2>
Goldman Sachs refers to these types of companies as HALO, which stands for &#34;Heavy Assets, Low Obsolescence.&#34;
<ul>
<li>Heavy Assets: Business models built on a large physical capital base, with high replication barriers—such as costs, regulations, construction time, engineering complexity, or network integration difficulties.</li>
<li>Low Obsolescence: The economic relevance of these assets can persist across technological cycles.</li>
</ul>
Typical examples include transmission grids, oil and gas pipelines, utilities, transportation infrastructure, critical equipment, and various industrial capacity categories that have slower replacement cycles compared to digital innovations.
These types of assets are difficult to create from scratch. In today's rapidly changing digital technology landscape, the replacement cycle for these physical assets is extremely slow. Technological innovations cannot easily replace a multinational oil pipeline, nor can they substitute a vast national power grid with code.
Goldman Sachs observes that companies are decisively returning to physical assets. Capacity, infrastructure, and long-cycle assets are experiencing an unprecedented value resurgence.
<h2>Why is the light asset myth coming to an end in the AI era?</h2>
Over the past decade, the zero interest rates and abundant liquidity following the global financial crisis have fostered business models centered on scalability rather than physical capital. Tech stocks and light asset industries have enjoyed extremely high valuation premiums.
However, this balance has been disrupted. The rapid rise of artificial intelligence is exerting a powerful &#34;dual pressure&#34; on global stock markets.
First, AI is disrupting the &#34;new economy&#34; model that has dominated the past decade, making the &#34;profitability and terminal value&#34; of some light asset industries more uncertain. Goldman Sachs bluntly states: &#34;The AI revolution is questioning the profitability and terminal value of software and IT services.&#34;
The report specifically mentions software, IT services, publishing, gaming, logistics platforms, and even the asset management industry, stating that their moats are being reassessed. Goldman Sachs expresses it plainly: &#34;The recent significant devaluation of software and IT services is not due to a collapse in short-term profits, but rather the market is repricing terminal values and the durability of profit margins—historically high profitability is seen as more susceptible to competitive erosion.&#34;
In other words, AI reduces the cost of information processing and compresses differentiation, leading the market to be more cautious in scoring long-term cash flows.
Secondly, AI is reshaping the landscape of capital expenditures. Goldman Sachs points out: &#34;AI is simultaneously transforming some of the most iconic 'light asset' winners into the largest capital spenders in history.&#34;
To maintain a lead in the foundational large model and computing power competition, 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 are expected to spend approximately $1.5 trillion on capital expenditures (Capex) between 2023 and 2026. In contrast, they had only invested about $600 billion throughout their entire development history before 2022.
Even more striking is that in just the year 2026, these giants' capital expenditures are expected to exceed $650 billion. This means that the investment in a single year will surpass their historical total before the advent of the AI era. This is the largest and fastest capital expenditure cycle in the history of technology.
This signifies two things: First, &#34;computing power infrastructure&#34; itself is a typical physical asset cycle; second, AI has not made the world lighter, but rather allowed more industries to benefit from the capabilities of &#34;being able to build, supply, and deliver.&#34;
As tech giants become &#34;heavy asset&#34; infrastructure behemoths, the market's faith in the superiority of &#34;light assets&#34; naturally wavers.
<h2>The market is rewarding HALO with real money</h2>
Investors have a keen sense. The performance difference between Goldman Sachs' &#34;heavy asset portfolio&#34; (GSSTCAPI) and &#34;light asset portfolio&#34; (GSSTCAPL) provides the most intuitive market answer.
Data indicates that asset intensity has become a core driver of valuation and returns. Goldman Sachs reveals in the report: &#34;Since 2025, our new heavy asset portfolio (GSSTCAPI) has outperformed the light asset portfolio (GSSTCAPL) by 35%.&#34;
This outperformance is not just about relative stock price fluctuations, but also about the convergence of valuation logic.
In the early 2020s, as the market viewed many old economy companies as &#34;structural value traps,&#34; the valuation of European growth stocks was once more than twice that of value stocks, with a premium rate as high as 150%. However, today, the valuation gap between heavy and light assets has narrowed sharply.
What is more noteworthy for investors is the manner of this valuation convergence. Goldman Sachs points out that the valuations of both are currently almost at the same level, but this convergence is &#34;more driven by the revaluation of heavy asset companies rather than a comprehensive downward adjustment of light asset companies.&#34;
Apart from some light asset sectors, such as software that are directly exposed to the risks of AI disruption, the overall market evolution path is: heavy asset companies have actively raised their valuations to align with the valuation levels of their light asset peers. This indicates that market funds are actively paying a premium for the resilience and strategic value of real economy assets.
<h2>How to Define &#34;Heavy Assets&#34;? Examination of Six Core Indicators</h2>
To penetrate traditional industry classifications and accurately identify those truly reliant on physical capital, Goldman Sachs has abandoned a single metric and instead constructed a comprehensive &#34;capital intensity score&#34; system that includes six indicators. This system profoundly reflects a new perspective on asset quality in the market.
<ol>
<li>Tangible Asset Intensity (Net tangible operating assets/Sales): A higher value indicates a heavier physical base required to generate each $1 of revenue.</li>
<li>Fixed Asset Intensity (Plant and equipment/Sales): Reflects the degree of reliance on physical bricks and mortar.</li>
<li>Fixed Asset Share (Plant and equipment/Total assets): Reveals how much capital is &#34;locked&#34; in long-term tangible assets on the company's balance sheet.</li>
<li>Capital-Labor Ratio (Tangible assets/Number of employees): Distinguishes whether the business is driven by machines or by a labor-intensive strategy.</li>
<li>Capital Expenditure Intensity (Capex/Sales): Measures the proportion of revenue that needs to be drawn out annually to maintain or expand the business.</li>
<li>Capital Expenditure Burden (Capex/EBITDA): Shows the extent to which operating cash profits are consumed by asset maintenance.</li>
</ol>
Through the scanning of these six dimensions, Goldman Sachs has categorized companies into distinctly different camps.
Utilities, basic resources, energy, and telecommunications undoubtedly occupy the heavy asset camp. These industries are strictly regulated, have high fixed capital requirements, and possess long asset lifespans.
In contrast, platform companies such as software, IT services, internet, and media are firmly pinned in the light asset, human capital-intensive category.
Interestingly, there is a &#34;middle ground&#34; in the market. Goldman Sachs found that while automobiles and aviation are clearly heavy assets, luxury goods and beverages also fall into the &#34;low obsolescence&#34; category of quality assets due to brand equity, production process know-how, and long-term investments in craftsmanship. In comparison, consumer services, gaming, and most retailers belong to structurally light assets, where their economic lifeblood relies on labor and marketing rather than physical capital.
<h2>Resonance of Macroeconomic Tailwinds and Performance Momentum</h2>
Why are heavy assets exploding at this juncture? The answer lies in the dual resonance of macroeconomic indicators and corporate fundamentals.
On the interest rate front, heavy asset stocks often 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, heavy asset sectors linked to tangible capacity can benefit from stronger nominal economic activity and government fiscal spending. Goldman Sachs notes that today's policy mix is guiding capital towards tangible assets, &#34; creating structural tailwinds for capital-intensive enterprises.&#34;
On the macro cycle front, the competition between manufacturing and services is a key barometer. The fate of heavy asset sectors is closely tied to industrial production and capital expenditure cycles. Goldman Sachs has observed that as the manufacturing PMI (particularly the future business expectations component) rebounds and surpasses the services PMI, the macro backdrop is once again tilting towards heavy asset industries
In terms of profitability, which determines the long-term performance of the stock market, the balance of fundamentals has already shifted.
In the past cycle, asset-light companies enjoyed a long-term valuation premium due to continuously high profit growth. However, after entering 2025, although asset-heavy companies faced short-term profit disruptions from tariffs and other trade friction factors (as commodity producers and export-oriented enterprises are more affected by tariffs than the service industry), the trend has become clear after stripping away the short-term noise.
Goldman Sachs emphasized: &#34;The profit momentum of asset-heavy companies has recently turned positive, and consensus expectations are being revised upward; meanwhile, profit expectations for asset-light companies are being downgraded.&#34;
Looking ahead, analysts' consensus expects the EPS compound annual growth rate (CAGR) for asset-heavy portfolios to reach 14% in the coming years, while asset-light portfolios are only expected to achieve 10%. More critically, the core indicator that has long supported the high valuation of asset-light companies—return on equity (ROE)—is showing signs of fatigue. The market currently expects the ROE of asset-light companies to remain flat, while the ROE of asset-heavy companies is expected to continue improving.
<h2>Capital Crowding: The Rotation Towards Asset-Heavy Companies Has Just Begun</h2>
Given that the logic is so clear and valuations have converged, has this wave of asset-heavy performance reached its end?
From the perspective of capital games, it is far from over.
The recent leadership of asset-heavy companies is closely related to the market's extreme desire to escape the crowded and expensive positions in &#34;U.S. tech stocks.&#34; Over the past 12 months, European value funds have seen a net inflow of 3%, while growth funds have experienced a net outflow of 9%.
However, Goldman Sachs pointed out sharply that despite the short-term rotation being intense, long-term capital positions remain very weak: &#34;The cumulative net outflow of European value funds compared to growth funds still hovers around -40% of assets under management.&#34;
This means that global investors are still severely underweight in value stocks (the concentration of asset-heavy companies). Based on this significant position gap, the structural logic that asset-heavy stocks will continue to outperform asset-light stocks remains solid.
In this era accelerated by AI reconstruction, the rapid advancement of the virtual world has made the physical world's steel, pipelines, and power grids exceptionally precious. Whether this is a long-term change in market leadership or a rebalancing in the cycle, for investors, the &#34;bulletproof&#34; nature of physical capital is radiating an undeniable brilliance.

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Goldman Sachs' latest report points out that as the replicability of AI products increases, the market is beginning to reassess the value of hard-to-replicate physical assets such as power grids and pipelines. The report suggests that the pricing logic in the stock market is shifting from light assets to heavy assets, emphasizing the repricing of scarcity. Goldman Sachs refers to these types of assets as HALO, which is a combination of heavy assets and low elimination rates, characterized by high replication barriers and lasting economic relevance. Typical examples include transmission grids and oil and gas pipelines, which are difficult to replace in technological innovation

- Goldman Sachs reports that as AI products become easier to replicate, markets are reconsidering the value of hard-to-replicate tangible assets like infrastructure.  
- This shift is characterized by a focus on "heavy assets" that are more resistant to obsolescence, as companies pivot back to investing in physical capital amidst rising interest rates and geopolitical challenges.  
- The report highlights a significant increase in capital expenditures among tech giants, signaling a long-term trend favoring tangible assets over light asset business models, which are facing re-evaluation in profitability and growth expectations.

"Scarce Assets" in the AI Era? Goldman Sachs: HALO - Heavy Assets, Not Outdated