What the Capex Boom Means for Stock Investors

While semiconductor stocks have gyrated in recent weeks, enterprises with heavy capital spending requirements are likely to be part of a long-term regime shift favoring capital-intensive companies that have significant physical assets, according to Goldman Sachs Research.

Rising capex—including from companies involved in artificial intelligence (AI) and defense—coincides with a series of long-term trends that have marked the years since the Covid-19 pandemic. A new investing regime has emerged amid higher inflation and interest rates, rising government debt, and geopolitical fragmentation, says Peter Oppenheimer, chief global equity strategist in Goldman Sachs Research. Oppenheimer calls this new investment regime “the post-modern cycle.”

Is rising capex good for stock investments?

“There’s definitely a willingness by investors to fund things that are capital intensive, because there’s a growing confidence that things which are capital intensive can actually generate a return now,” Oppenheimer says.

Until the end of the Covid-19 pandemic, investors were relatively reluctant to put their money in industries with a high proportion of tangible assets, which were characterized at the time by excess capacity, low returns on capital, and weak growth prospects.

Instead, since the 1980s, an era of declining interest rates, disinflation, and cheap capital prompted a flow of investment into asset-light technology companies, which were supporting the shift from an analog world to a digital one, Oppenheimer says.

Now, this trend appears to be reversing. Higher interest rates have made stock selection more critical now that falling prices are no longer a tailwind for the broader market, and a higher cost of capital has put a cap on equity valuations, according to Goldman Sachs Research.

Following the pandemic, “the leadership of assets in the post financial crisis era that favored long duration growth began to shift,” Oppenheimer says. “Supply constraints started to push up inflation and interest rates. Real assets began to perform better on the back of rising prices, and, within financial markets, leadership started to shift toward areas that had previously been left behind, including industrials, emerging markets, Japan, and (until recently) gold.”

Furthermore, companies with tangible assets and in sectors that have high barriers to entry—known as HALO companies (heavy assets, low obsolescence)—have a greater visibility of cash flows now than many companies in the traditional technology industry, which are more at risk from both depreciation and disruption by new technologies, Oppenheimer says.

For example, software stocks fell at the beginning of this year as investors considered their potential for disruption by AI.

Which stocks are outperforming?

Capital spending has been falling on average as a proportion of GDP since around 1960. “That’s partly because richer countries have been outsourcing heavy-capex manufacturing to places like China and emerging markets in the era of hyperglobalization. And richer countries have become increasingly dominated by services, which are less capital intensive,” Oppenheimer explains.

Rich countries have also invested heavily in technology, which tends to be less capital intensive and more scalable over time. Oppenheimer points to software as an example: Margins and returns for software companies have jumped since the start of the twenty-first century as demand for software rose even as the cost of ramping up production remained very low.

Now, Oppenheimer says markets have entered a new investment regime where an increase in capex is needed to drive the next cycle of growth. And technology—the only sector with consistently strong performance in both the post-financial-crisis era and the post-pandemic era—is increasingly driven by physical infrastructure rather than virtual assets.

The biggest AI providers are expected to spend around $755 billion on capex in 2026, and $920 billion in 2027, according to Goldman Sachs Research. “Data centers and energy suppliers have become crucial to their growth plans, leading to a cascading effect where capex spending by the tech giants has spilled into improved growth opportunities across many traditional, value-oriented, old economy industries that had long been overlooked,” Oppenheimer says.

At the same time, geopolitical fragmentation is also driving up the cost of capital as governments borrow more money in order to meet new priorities such as supply chain robustness, energy security, and increased defense spending.

How is the rise in capex impacting the stock market?

The rising cost of capital since the end of the pandemic has driven increasing dispersion between the performance of individual stocks.

In an environment of falling interest rates and a low cost of capital, investors “just need to get exposure to financial assets, because a lot of the return is simply coming from rising valuations,” Oppenheimer says.

Now, with interest rates higher and the cost of capital rising, fundamental profit growth is becoming a crucial driver of performance. “If you can generate a return that comfortably exceeds the higher cost of capital, that’s going to be an important factor,” Oppenheimer says.

Companies exposed to the capex boom are possible winners in this new regime. The combination of rising borrowing, geopolitical fragmentation, and the AI buildout is accelerating investment in infrastructure, energy, and industrial capacity.

At the same time, Oppenheimer cautions that capital-intensive companies in resurgent sectors can pose risks for investors.

“They require a lot of capital to generate growth, but it may be a long time before they actually make a profit,” he points out. “That makes it harder to value assets.”

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