TradingKey - As AI technology continues to lower the replication threshold for virtual products, the asset pricing logic of global markets is quietly shifting—tangible assets rooted in the physical world that are difficult to replace digitally are regaining high-level favor from capital. This trend has been defined by Wall Street as the "HALO trade," the core of which is an investment logic centered on "heavy assets and low obsolescence risk."
On February 24, Goldman Sachs ( GS) Global Investment Research released its latest report, "The HALO Effect: Heavy Assets, Low Obsolescence in the AI Era," noting that amid the convergence of rising real interest rates, geopolitical fragmentation, supply chain restructuring, and the surge in AI capital expenditure, the core pricing logic of the stock market is shifting from a "rapidly scalable asset-light narrative" to "tangible production capacity and networks that can be physically built and are difficult to replace."
Goldman Sachs summarizes this market shift as the "repricing of scarcity."
Morgan Stanley ( MS )'s trading desk believes that market panic regarding AI's disruption of traditional industries may have peaked; for investors who remain concerned about the ongoing impact of AI, tangible assets with high barriers to entry that are resilient to technological obsolescence (i.e., HALO trade targets) are the optimal choice for hedging AI risks.
What is HALO?
HALO is an acronym for Heavy Assets, Low Obsolescence. This concept was first introduced in early February 2026 by Josh Brown of Ritholtz Wealth Management and was subsequently incorporated into investment frameworks and marketed by Morgan Stanley.
Amid the rapid iteration of AI technology, many fear that physical assets will be rendered obsolete by the digital wave; however, the core logic of the HALO trade is quite the opposite: physical assets such as factories, energy facilities, and retail chains have become "immune assets" against technological disruption because they are difficult to replace through AI virtualization. The current market shift from asset-light models (such as internet platforms) to asset-heavy ones is essentially a restructuring of asset valuation standards—where the pursuit of rapid expansion via asset-light models in the past has given way to a greater emphasis on the long-term stability and risk-resilience of physical assets.
Based on Morgan Stanley's investment practices and market cases, HALO assets are primarily concentrated in three asset-intensive sectors:
- Industrials and Manufacturing Assets
Exemplified by tractor manufacturers like Deere & Co., heavy machinery plants, and high-end equipment suppliers. The core competitiveness of such companies stems from physical production lines, proprietary equipment, and mature supply chain networks. With long technology refresh cycles, their production processes and data are difficult to replace through AI virtualization, creating solid barriers to entry.
- Energy and Commodities Assets
Typical examples include oil and gas giants like ExxonMobil, as well as mineral developers and commodity traders. Their value is firmly tied to underground resource reserves, refining facilities, and logistics networks. Given the inelastic demand for energy and minerals and the inherent scarcity of these assets, it is difficult for AI to achieve substantial penetration into their industry chains.
- Consumer Chains and Offline Network Assets
Global restaurant chains like McDonald's are archetypal of this asset class. Their core value lies in a global network of company-owned properties and standardized supply chain systems. Stable rental income and brand premiums generate consistent cash flow, while offline consumption scenarios exhibit low sensitivity to technological iterations.
Furthermore, infrastructure such as ports and power grids, as well as natural resources like farmland and timberland, are categorized as extensions of HALO assets due to their long-term operating rights and low dependence on technology.
The Impact of AI on the Market Landscape
Over the past decade or so, influenced by zero interest rates and loose liquidity following the financial crisis, the market has particularly favored "asset-light, fast-expansion" business models. Companies such as tech stocks and internet platforms, which can rapidly replicate growth without significant physical capital, have enjoyed extremely high valuation premiums; "asset-light equals high growth" has almost become a consensus within investment circles.
Today, however, this balance is being completely disrupted by AI.
The ubiquity of AI is reconstructing the market's value judgment of asset-light industries. Goldman Sachs stated bluntly: "The AI revolution is calling into question the profit margins and terminal values of software and IT services."
Empowered by AI, information processing costs have dropped significantly, and the competitive advantages between companies are being rapidly compressed. Industries that previously established high profit margins through technical barriers or first-mover advantages—such as software, IT services, publishing, gaming, logistics platforms, and even asset management—are seeing their moats re-evaluated by the market.
Goldman Sachs further pointed out that the valuation contraction in the software and IT services sectors is not due to issues with short-term earnings, but rather the market re-examining their long-term value—the sustainability of their historical high profitability is being questioned in the face of intense competition brought by AI.
Simply put, AI has made future cash flow expectations for asset-light industries that once "earned easy money" less certain; naturally, the valuations the market is willing to provide have decreased accordingly.
At the same time, AI is not only disrupting old models but also fostering a new logic for capital expenditure. Goldman Sachs noted: "AI is simultaneously transforming some of the most iconic 'asset-light' winners into the largest capital spenders in history."
To seize the lead in the race for AI large models and computing power, the five major U.S. tech giants have launched an unprecedented investment cycle. Data shows that since the debut of ChatGPT in 2022, these companies' capital expenditures from 2023 to 2026 will reach $1.5 trillion, compared to a cumulative investment of just $600 billion throughout their entire history prior to 2022. Even more striking, in 2026 alone, the capital expenditures of these giants are expected to exceed $650 billion, equivalent to the sum of all their investments before the AI era.
This shift signals two key points: first, "computing power infrastructure" itself is becoming a massive physical asset track; second, AI has not made the economy "lighter," but has instead driven demand for physical industries capable of "building, producing, and delivering." When former asset-light tech giants begin pouring massive funds into building data centers and purchasing hardware, the market's faith in the asset-light model naturally wavers.
The Rise of HALO Transactions: How Capital is Redefining Heavy-Asset Value
Against a backdrop of marginally loosening macro-financial conditions, global equity markets appear overall stable recently, yet are undergoing severe internal structural adjustments.
Morgan Stanley trader Kunal Sodha noted that while the overall level of the S&P 500 has remained largely unchanged since the end of last October, sector divergence within the index has reached unprecedented levels over the past four months, with a structural correction quietly underway.
The extremity of this internal rotation is clearly reflected in the data: the growth-versus-value return spread (MSZZGRVL) saw a sharp 24% drawdown, the Beta long/short factor (MSZZBETA) pulled back 21%, and the S&P 500’s Information Technology and Consumer Discretionary sectors collectively fell 11%.
What makes this adjustment particularly unique is that it was not driven by negative macro events, but stemmed entirely from market panic over AI disrupting traditional business models, leading to IBM's largest single-day share price drop this century, second only to the Dot-com bubble burst.
However, the primary reason the broad market index has maintained its range-bound pattern is the rapid reallocation of capital. While certain sectors faced sell-offs, funds quickly flowed into defensive and cyclical sectors, driving Industrials up 13%, Consumer Staples up 16%, Materials up 22%, and Energy up a staggering 25%.
Looking at quarterly return data since 2021, the return spread between the best and worst-performing sectors within the S&P 500 this quarter has reached its third-highest level in nearly five years.
The shift in market capital flows can be most directly observed in the performance divergence between Goldman Sachs' asset-heavy portfolio (GSSTCAPI) and its asset-light portfolio (GSSTCAPL).
Data indicates that the physical intensity of assets has become a core factor influencing corporate valuations and investment returns. Goldman Sachs revealed in a report: "Since the start of 2025, our new asset-heavy portfolio (GSSTCAPI) has outperformed the asset-light portfolio (GSSTCAPL) by 35%."
From an earnings fundamental perspective, asset-light companies enjoyed long-term valuation premiums during the previous cycle, driven by sustained high earnings growth.
However, since the start of 2025, the scales of market earnings expectations have reversed. Although the short-term earnings of asset-heavy companies have been disrupted by trade frictions such as tariffs—being commodity producers and export-oriented firms, they are far more affected by tariffs than the service sector—the trend remains clear once short-term noise is stripped away.
Goldman Sachs emphasized: "Earnings momentum for asset-heavy companies has recently turned positive, and consensus expectations are being revised upward, while earnings expectations for asset-light companies are being revised downward."
Regarding long-term outlooks, analyst consensus suggests that the EPS compound annual growth rate (CAGR) for the asset-heavy portfolio will reach 14% over the coming years, compared to just 10% for the asset-light portfolio.
More critically, Return on Equity (ROE)—the core metric supporting high valuations for asset-light firms—is weakening. The market expects ROE for asset-light companies to remain flat, while ROE for asset-heavy companies is poised for continuous improvement, signaling a steady increase in the long-term profitability of asset-heavy enterprises.
The rally in asset-heavy sectors is far from over.
Now that the investment logic for asset-heavy sectors is clear and valuations have converged with those of asset-light sectors, is this rally nearing its peak? From the perspective of capital flow dynamics, the answer is clearly no; the trend is far from over.
The recent outperformance of asset-heavy sectors is driven by the urgent rotation out of crowded and overvalued U.S. tech positions. Over the past 12 months, European value funds recorded 3% net inflows, while growth funds saw 9% net outflows, signaling a manifest shift in capital flows.
However, Goldman Sachs pointed out incisively that despite the sharp short-term rotation, long-term positioning remains thin: "Cumulative net outflows from European value funds relative to growth funds are still hovering at around -40% of assets under management."
This suggests that global investors remain significantly underweight in value stocks, where asset-heavy companies are concentrated. This massive positioning gap ensures that the structural logic for asset-heavy outperformance remains intact, with sufficient capital momentum to drive the rally further.
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