Investors are repricing "old world" capital-intensive assets, a trend expanding from data centers to the broader real economy supply chain. A Goldman Sachs research report from February 24th highlighted that in the AI era, capital is flowing towards "Heavy Asset, Low Obsolescence" (HALO) physical assets, such as power grids, pipelines, utilities, transportation infrastructure, and critical industrial capacity. These assets are difficult to replicate, possess high physical barriers, and are not easily outdated. A basket of HALO stocks has seen sustained gains since late February. Concurrently, shifts in U.S. tariff policy are providing additional support for physical asset investments. Goldman Sachs preliminary estimates suggest that tariff policy adjustments triggered by a Supreme Court ruling could lower the effective U.S. tariff rate by approximately 100 basis points. Although the direction of tariff policy remains uncertain, for infrastructure and industrial firms reliant on physical imports, the potential for cost relief further strengthens the short-term rationale for a market shift towards physical assets. Recently, Goldman Sachs strategist Chris Hussey emphasized that investors are assigning higher valuations to traditional capital-intensive companies, with this trend extending both upstream and downstream in the supply chain and into the wider economy. Goldman Sachs' Oppenheimer explained that this marks the first time in roughly a quarter-century since the commercialization of the internet that technological growth prospects are highly dependent on physical assets like data centers and energy supply.
**Physical Asset Revaluation, from Data Centers to the Entire Infrastructure Chain**
Goldman Sachs posits that the logic behind this round of revaluation for capital-intensive firms is analogous to a gold rush, where the most consistent beneficiaries are often the manufacturers of the shovels. Goldman Sachs' Oppenheimer noted that technological growth in the AI era is increasingly reliant on visible, tangible physical assets, rather than the pure software and platform models that dominated markets over the past twenty-five years. This assessment is leading to a repricing of the strategic value of "hard assets." Goldman Sachs defines the highest quality "HALO" investment targets as companies possessing two key traits. First, their assets have high replacement costs, deep regulatory barriers, and long construction cycles, making them difficult to disrupt or replace easily. Second, they possess long-term economic value. Specific focus areas include:
* Power grids * Pipelines * Utilities * Transportation infrastructure * Critical machinery and equipment * Long-cycle industrial capacity
**Soft Assets Under Pressure, AI Disruption Fears Trigger Valuation Reshuffle**
Counterbalancing the enthusiasm for physical assets is the continued pressure on soft assets. Sectors such as software, media, consulting, and certain financial subsectors are facing market reassessment. In February of this year, software and IT services stocks experienced another significant decline, with stocks like INTU, WDAY, IBM, and ACN each falling more than 20% for the month. The market fears that artificial intelligence could "disintermediate" these businesses or open the door for lower-cost competitors, fundamentally damaging their business models. However, Goldman Sachs analyst Gabriela Borges stressed that not all software company business models are the same. She pointed out that the Agentic technology ecosystem is evolving rapidly, making it extremely challenging to assess final value and set valuation floors. Therefore, this does not imply that all software stocks should be sold. Goldman Sachs believes investors can still focus on companies that can demonstrate their historical experience leads to higher-quality AI outcomes and that maintain or improve their fundamentals through profitability in the coming AI era.
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