A "Scarce Asset" in the AI ​​Era? Goldman Sachs: HALO – Asset-Heavy, Timeless

As AI products become easier to replicate, the market is beginning to reprice "hard-to-replicate physical assets" such as power grids, pipelines, infrastructure, and long-term production capacity. On February 24th, Goldman Sachs Global Investment Research released a new report, "The HALO effect: Heavy Assets, Low Obsolescence in the AI ​​era," which argues that under the combined influence of higher real interest rates, geopolitical fragmentation, supply chain restructuring, and the wave of AI capital expenditure, the core pricing logic of the stock market is shifting from a "scalable, asset-light narrative" to "buildable, irreplaceable physical production capacity and networks." Goldman Sachs summarizes this change as "scarcity repricing." Higher real yields, geopolitical fragmentation, and supply chain restructuring are pulling stock market leadership back to 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 these companies as HALO, which combines "heavy assets" and "low obsolescence," or Heavy Assets, Low Obsolescence. Heavy Assets: Their business models are built on a large base of physical capital and have high barriers to replication—such as cost, regulation, construction time, engineering complexity, or network integration difficulty. Low Obsolescence: The economic relevance of these assets can endure through technology cycles. Typical examples include power grids, oil and gas pipelines, utilities, transportation infrastructure, critical equipment, and various industrial capacity categories with replacement cycles that are much slower than digital innovation. These assets are difficult to create out of thin air. In today's rapidly evolving digital technology landscape, the replacement cycle for these physical assets is extremely slow. Technological innovation cannot easily replace a transnational oil pipeline, nor can code replace a massive national power grid. Goldman Sachs observes that companies are currently making a decisive return to physical assets. Production capacity, infrastructure, and long-cycle assets are experiencing an unprecedented return to value. Why is the myth of asset-light businesses ending in the AI ​​era? Over the past decade, the zero interest rates 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 broken. The rapid rise of artificial intelligence is exerting a powerful "double pressure" on global stock markets. First, AI is disrupting the "new economy" model that has dominated the past decade, making the "profit margins and terminal value" of some asset-light industries more uncertain. Goldman Sachs bluntly states: "The AI ​​revolution is questioning the profit margins and end-value of software and IT services." The report specifically names software, IT services, publishing, gaming, logistics platforms, and even asset management, saying that their competitive advantages are being reassessed. Goldman Sachs's expression is straightforward: "The recent significant devaluation of software and IT services is not due to a short-term profit collapse, but rather the market is repricing terminal value and profit margin durability—historically high profitability is now seen as more vulnerable to competitive erosion." In other words, AI reduces information processing costs and also compresses differentiation, causing the market to be more cautious in scoring long-term cash flows. 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 their lead in the race for fundamental big data models and computing power, the five major US tech giants have embarked on an unprecedented investment cycle. Data shows that since the launch of ChatGPT in 2022, these giants' capital expenditures (Capex) between 2023 and 2026 will reach approximately $1.5 trillion. In comparison, they only invested a total of about $600 billion in their entire development history before 2022. Even more impactful is that in 2026 alone, these giants' capital expenditures are expected to exceed $650 billion. This means that the investment in a single year will surpass the total investment in all previous years before the advent of the AI ​​era. This is the largest and most rapid capital expenditure cycle in the history of technology. This implies two things: First, "computing infrastructure" itself is a typical physical asset cycle; second, AI has not made the world lighter, but rather has allowed more industrial chains to benefit from the ability to "build, supply, and deliver." When tech giants become "asset-heavy" infrastructure behemoths, the market's belief in the superiority of "asset-light" models naturally wavers. The market is rewarding HALO with real money. Investors are quick to react. The performance difference between Goldman Sachs' "heavy asset portfolio" (GSSTCAPI) and "light asset portfolio" (GSSTCAPL) provides the most direct market answer. Data shows that asset intensity has become a core driver of valuation and returns. Goldman Sachs revealed in its report: "Since 2025, our new asset-heavy portfolio (GSSTCAPI) has outperformed the asset-light portfolio (GSSTCAPL) by 35%." This outperformance is not merely a reflection of relative stock price volatility, but rather a convergence of valuation logic. In the early 2020s, as the market viewed many old-economy companies as "structural value traps," European growth stocks were valued at more than double that of value stocks, with premiums reaching as high as 150%. However, the valuation gap between asset-heavy and asset-light stocks has now narrowed dramatically. What investors should pay even more attention to is the manner of this valuation convergence. Goldman Sachs points out that the valuations of the two are currently almost at the same level, but this convergence is "more driven by the revaluation of asset-heavy companies than by a comprehensive downgrade of asset-light companies." Apart from the weakness in some asset-light sectors such as software, which are directly exposed to the disruptive risks of AI, the overall market evolution has been: asset-heavy companies have proactively raised their valuations to match the valuation levels of their asset-light counterparts. This indicates that market funds are actively paying a premium for the elasticity and strategic value of real economy assets. How to define "asset-heavy"? Examining Six Core Indicators

To penetrate traditional industry classifications and accurately identify targets that truly rely on tangible capital, Goldman Sachs abandoned single indicators and instead constructed a comprehensive "capital intensity score" system comprising six indicators. This system profoundly reflects the market's new perspective on asset quality.

1. Tangible Asset Intensity(Net Operating Assets/Sales): The higher the value, the heavier the physical foundation required to generate every dollar of revenue.

2. Fixed Asset Intensity(Plant and Equipment/Sales): Reflects the degree to which a company relies on physical building blocks.

3. Fixed Asset Intensity(Plant and Equipment/Sales): Reflects the degree to which a company relies on physical building blocks.

Fixed Assets Share (Plant and Equipment/Total Assets): Reveals how much capital is "locked up" in long-term tangible assets on the company's balance sheet. Capital-Labor Ratio (Tangible Assets/Number of Employees): Differentiates between machine-driven and human-intensive operations. Capital Expenditure Intensity (Capex/Sales): Measures the percentage of capital required annually to maintain or expand the business. Capital Expenditure Burden (Capex/EBITDA): This shows the extent to which operating cash flow is eroded by asset maintenance. Through this six-dimensional scan, Goldman Sachs categorized companies into distinct camps. Utilities, basic resources, energy, and telecommunications unsurprisingly remain firmly in the asset-heavy category. These industries are heavily regulated, have extremely high fixed capital requirements, and very long asset lifespans. Conversely, platform companies such as software, IT services, internet, and media are firmly categorized as asset-light and human capital-intensive. Interestingly, there's a "middle ground" in the market. Goldman Sachs found that while automobiles and aviation are clearly asset-heavy, luxury goods and beverages also fall into the "low obsolescence" category of high-quality assets due to brand equity, manufacturing know-how, and long-term investment in those technologies. In contrast, consumer services, gaming, and most retailers are structurally asset-light, their economic lifeline lying in labor and marketing rather than physical capital. Why are asset-heavy sectors experiencing a surge at this juncture? The answer lies in the dual resonance of macroeconomic indicators and corporate fundamentals. On the interest rate front, asset-heavy stocks tend to perform well during periods of higher interest rates. This is because high yields ruthlessly compress the valuations of long-duration, asset-light growth companies. Meanwhile, asset-heavy sectors linked to tangible production capacity benefit from stronger nominal economic activity and government fiscal spending. Goldman Sachs notes that the current policy mix is ​​guiding capital flows towards real assets, “creating a structural tailwind for capital-intensive companies.” On the macroeconomic cycle front, the interplay between manufacturing and services is a key indicator. The fate of asset-heavy sectors is closely linked to industrial production and capital expenditure cycles. Goldman Sachs observes that as the manufacturing PMI (especially the future business expectations component) rebounds and surpasses the services PMI, the macroeconomic backdrop is once again tilting towards asset-heavy industries. On the earnings side, which determines the long-term performance of the stock market, the balance of fundamentals has also shifted. In the past cycle, asset-light companies enjoyed a long-term valuation premium due to their consistently high earnings growth. However, entering 2025, although the short-term earnings of asset-heavy companies have been affected by trade friction factors such as tariffs (as commodity producers and export-oriented enterprises, they are far more affected by tariffs than the service industry), after removing short-term noise, the trend is already clear. Goldman Sachs emphasizes: "The earnings momentum of asset-heavy companies has recently turned positive, and consensus expectations are being revised upwards; while earnings expectations for asset-light companies have been revised downwards." Looking ahead, analysts' consensus expects the compound annual growth rate (CAGR) of EPS for asset-heavy portfolios to reach 14% over the next few years, while that for asset-light portfolios is only 10%. More critically, the core indicator that has long supported the high valuations of asset-light companies—Return on Equity (ROE)—is showing signs of weakness. The market currently expects the ROE of asset-light companies to remain flat, while the ROE of asset-heavy companies is expected to continue to improve.

• Capital Crowding: The Rotation Towards Heavy Assets Has Only Just Begun

Given the clear logic and the convergence of valuations, has this wave of heavy asset-driven rallies come to an end?

From the perspective of capital game theory, it's far from over.

The recent surge in heavy asset-driven stocks is closely related to the market's extreme desire to get rid of crowded and expensive "US tech stock" positions. Over the past 12 months, European value funds have seen a 3% net inflow, while growth funds have experienced a 9% net outflow.

However, Goldman Sachs astutely points out that despite the sharp short-term rotation, long-term funds remain heavily invested: "European value funds have seen cumulative net outflows from growth funds hovering around -40% of their assets under management." This means that global investors remain severely underweight in value stocks (where heavy assets are concentrated). Based on this significant position gap, the structural logic that heavy asset stocks continue to outperform light asset stocks remains rock solid. In this era of accelerated AI-driven restructuring, the rapid advancement of the virtual world has ironically made the steel, pipes, and power grids of the physical world more precious than ever before. Whether this is a prolonged shift in market leaders or a rebalancing within a cycle, the "bulletproof vest" property of physical capital is radiating an undeniable brilliance for investors.