Goldman Sachs posits that the world has moved beyond the old paradigm of 'low rates, low inflation, and globalization' and entered a 'postmodern' investment era: valuation expansion is unlikely to be replicated, and earnings growth has become the primary driver of returns. The AI revolution and geopolitical shifts are jointly fueling a capital expenditure supercycle, with capital flowing from software and internet sectors toward physical-economy sectors such as power, industrials, energy, and defense. Goldman Sachs believes that future index returns may be more muted, but divergence across sectors and investment styles will intensify significantly, heralding the arrival of an alpha-driven era of active stock selection.
The global investment paradigm is undergoing a profound structural transformation.
According to Wind Trading Desk, Goldman Sachs stated in its latest global strategy report that the 'modern' super-cycle—characterized by low inflation, low interest rates, and globalization—has become history. A 'post-modern' cycle, marked by higher macroeconomic volatility, higher real interest rates, stronger state intervention, and regionalization, is now reshaping the fundamental drivers of equity returns.
In their report titled 'The Post-Modern Cycle: Navigating the Capital Expenditure Boom,' Goldman Sachs strategists Peter Oppenheimer, Sharon Bell, and colleagues explicitly noted that the era of returns driven by valuation expansion is coming to an end, and earnings-per-share growth will become the dominant variable shaping market performance. Simultaneously, the AI revolution is fueling a wave of private-sector capital spending, while geopolitically motivated surges in public investment are converging to form a synchronized capital expenditure super-cycle.
This shift directly impacts investors’ asset allocation logic. Goldman Sachs argues that higher capital costs constrain the room for valuation multiple expansion, and cross-sectional dispersion in market returns is rising. This implies that strategies relying solely on beta exposure will face greater challenges, while the alpha value generated through active stock selection will significantly increase.
"The Modern" Super-Cycle: An Irreplicable Golden Age
To understand today’s structural shift, one must first clarify the macroeconomic backdrop of the past four decades. Goldman Sachs defines the period from 1982 to 2007 as the "modern" super-cycle, whose core drivers were a confluence of unidirectional, persistent tailwinds.
During this period, global inflation steadily declined from the highs of the 1970s. After Federal Reserve Chair Paul Volcker’s tightening campaign pushed U.S. policy rates from around 10% to nearly 20%, interest rates peaked and then embarked on a decades-long downward trajectory, while the S&P 500’s price-to-earnings ratio climbed from a historic low of 7x.
Supply-side reforms led by Reagan and Thatcher ushered in waves of deregulation, privatization, and tax cuts, driving sustained declines in corporate tax rates across major economies.
Meanwhile, globalization accelerated rapidly.
The Uruguay Round negotiations launched in 1986, the signing of the North American Free Trade Agreement (NAFTA) in 1994, and China’s accession to the World Trade Organization in 2001 collectively forged a golden age for global trade—between 1995 and 2010, global trade grew at twice the pace of global GDP.
Outsourcing in manufacturing to low-cost regions suppressed labor costs, while the shale gas revolution in the energy sector further depressed energy prices, driving corporate profits as a share of GDP to historic highs.
Together, these factors created an era of low macroeconomic volatility, high corporate profitability, and elevated returns on assets—the 'Great Moderation.'
The Zero-Interest-Rate Era: A Valuation-Driven Illusion of Prosperity
The global financial crisis of 2008 disrupted the normal progression of the 'modern' economic cycle, but the subsequent quantitative easing policies ushered in another unique market regime.
According to Goldman Sachs, although the post-2009 economic recovery was weaker than the average of all recoveries since 1950, financial market performance significantly exceeded historical averages—equities and bonds rose in tandem, though returns were highly concentrated.
Amid sluggish nominal GDP growth and scarcity of genuine growth opportunities, capital flowed en masse into assets offering predictable growth, with U.S. technology stocks emerging as the primary beneficiaries. The tech sector’s ROE (return on equity) continued to accelerate, as software and cloud computing companies leveraged their pricing power derived from the migration from analog to digital worlds to achieve explosive profit growth.
Between 2009 and 2022, global technology stocks outperformed non-tech stocks by more than 200%, while U.S. equities significantly outperformed other markets, and growth-style investing reached a historically extreme premium over value-style investing.
However, Goldman Sachs notes that the high returns during this period relied heavily on persistently ultra-low discount rates continuously inflating valuations, rather than being driven solely by fundamentals—a dynamic that has become unsustainable following a fundamental shift in the interest rate environment.
"Post-Modern" Cycle: Seven Structural Shifts Reshaping Investment Logic
Goldman Sachs argues that the COVID-19 pandemic served as the pivotal trigger for the 'post-modern' cycle, after which a series of events accelerated and amplified the intensity of structural transformations. The report identifies seven core shifts:
First, the cost of capital has shifted upward. The pandemic-induced supply chain disruptions triggered the first inflationary shock of this century, driving real interest rates significantly higher. Germany’s and Japan’s 30-year government bond yields have risen from near-zero levels to nearly 4%—a magnitude of change that cannot be overstated.
Second, government debt continues to rise. The U.S. public debt-to-GDP ratio increased from 55% to 124%, the U.K.’s from 37% to 95%, the euro area’s from 69% to 95%, and China’s from 22% to 102%. Intensified competition among governments for global capital has further pushed up long-end interest rates.
Third, tariff barriers are being re-erected. The U.S. effective tariff rate has reached its highest level since the 1930s, and the number of global trade policy interventions has surged sharply, with discriminatory measures far outnumbering liberalization efforts.
Fourth, the geopolitical order is undergoing restructuring. The rules-based international order established after World War II is being called into question, policy uncertainty indices have climbed to multi-year highs, and governments worldwide are reassessing the relationship between defense and trade.
Fifth, energy and commodity security have risen in policy priority. Supply chain security and energy independence have become central policy objectives, driving sustained increases in capital expenditures in these areas.
Sixth, defense spending is experiencing a cyclical upturn. Conflicts in Ukraine and Iran have spurred a substantial increase in global defense expenditures, prompting traditionally low-spending countries like Germany and Japan to launch large-scale military expansion programs.
Seventh, an AI-driven capital expenditure revolution is underway. The emergence of large language models has initiated a new wave of technological innovation, generating unprecedented demand for capital investment.
The Core Engine of the AI Super-Capital-Expenditure Cycle
The AI revolution is the most direct catalyst of the current super-cycle in capital expenditures.
According to Goldman Sachs, in the first quarter of 2026, year-over-year capital expenditure growth among S&P 500 companies in the U.S. reached 38%, while share buyback growth stood at just 1%—marking a sharp reversal from the post-financial-crisis decade when markets rewarded companies primarily for buybacks rather than capital investment.
Hyperscalers' spending plans are particularly aggressive.
According to Goldman Sachs’ aggregation of market consensus expectations, the combined capital expenditures of Amazon, Meta, Google, Microsoft, and Oracle are projected to reach approximately $75.5 billion in 2026—about 80% higher than a year earlier and roughly 84% above their actual 2025 spending—with further increases expected to around $92 billion in 2027.
However, this wave of capital expenditure is also reshaping the distribution of value within the technology sector.
Goldman Sachs notes that as hyperscalers’ capital spending continues to erode free cash flow, the market is beginning to question whether they can sustain their previous levels of excess returns and profit margins.
Meanwhile, the rapid iteration of Agentic AI has sparked investor concerns about potential disruption to software business models—the valuation premium of the software and IT services sector relative to the broader market has narrowed significantly within just a few months, while the premium for hardware and IT equipment has converged toward that of the software segment. Goldman Sachs warns that investors are striving to avoid a 'Kodak moment' in the AI era.
Leadership Rotation: Revaluation of Physical Assets and the Old Economy
The 'post-modern' cycle is driving not only structural adjustments within the technology sector but also a broader rotation in market leadership.
Goldman Sachs data show that since 2025, emerging markets, gold, industrial metals, Japanese equities, and value-style investing have all outperformed Nasdaq and the S&P 500—a sharp reversal from the market dynamics that prevailed in the decade following the global financial crisis.
This rotation is underpinned by deep fundamental drivers.
Goldman Sachs points out that the growth of tech giants now depends less on software applications in the virtual world and increasingly on physical infrastructure such as data centers and power supply.
This interdependence has generated a 'cascading effect'—capital expenditure by major technology firms is spilling over into numerous traditionally overlooked value-oriented sectors, creating structural revenue growth opportunities for industries such as industrials, energy, and utilities.
Meanwhile, geopolitically driven surges in defense spending are providing a new source of demand for another segment of the 'old economy.' Demand for traditional defense equipment—including aircraft, tanks, ammunition, and naval vessels—has risen sharply in countries like Germany and Japan, prompting a systematic revaluation of valuations for related companies.
Positioning in capital expenditure beneficiaries to embrace the era of alpha generation
Within this macro framework, Goldman Sachs explicitly reaffirms its investment preference for capital expenditure beneficiaries. The global basket of capital expenditure beneficiary stocks tracked by Goldman Sachs has risen approximately 25% year-to-date, yet Goldman Sachs maintains that structural support remains robust.
By sector composition, this basket comprises roughly 30% industrials, 20% commodities producers, 15% technology stocks, and 10% utilities, with the remainder distributed across chemicals, construction, telecommunications, and real estate. Goldman Sachs also recommends four thematic investment baskets: artificial intelligence, defense spending, power and electrification, and HALO (heavy-asset stocks).
Goldman Sachs’ GS Capital Expenditure Tracker covers approximately 4,000 companies globally across more than 20 end markets. Its data indicate that the relative performance of capital expenditure beneficiary stocks typically leads the capital expenditure cycle by several quarters. Current readings remain constructive, and investment momentum is now broadening from data centers to energy, industrials, and infrastructure sectors.
Goldman Sachs emphasizes that in an environment of higher cost of capital, there is limited room for valuation multiple expansion; thus, earnings growth and upward revisions to earnings expectations will become the primary drivers of excess returns. Currently, capital expenditure beneficiary stocks are delivering double-digit earnings growth, with consensus market expectations for year-over-year earnings revisions up by approximately 25%, providing fundamental support for sustained valuation premiums.
Goldman Sachs concludes that future markets will exhibit lower aggregate index-level returns, but dispersion in relative returns across regions, sectors, and investment styles will widen significantly. This implies that investors are entering a new era in which active management and alpha generation are more valuable than ever before.
Editor/melody