Goldman Sachs In-Depth Analysis of the "Postmodern" Investment Landscape: The Era of Easy Gains from Valuation Upgrades Ends, Capital Expenditure Supercycle Quietly Arrives

The global investment paradigm is undergoing a profound structural transformation.

According to Chasing Trends Trading Desk, Goldman Sachs pointed out in its latest global strategy report that the "modern" super cycle characterized by low inflation, low interest rates, and globalization is now history. A "post-modern" cycle, marked by higher macro volatility, higher real interest rates, stronger state intervention, and regionalization, is reshaping the logic of equity returns.

Goldman Sachs strategists Peter Oppenheimer, Sharon Bell and others stated clearly in their report, titled "The Post-modern Cycle: Riding the Capex Boom", that the era of return driven by valuation expansion is coming to an end. Earnings growth per share will become the core variable dictating market performance. At the same time, the wave of private capital expenditure triggered by the AI revolution, coupled with a surge in government public investment driven by geopolitics, is forming a synchronous, resonant capex super cycle.

This transformation has a direct impact on the logic of asset allocation for investors. Goldman Sachs believes that higher capital cost constrains the room for valuation multiple expansion, while the cross-sectional dispersion of market returns is rising. This means that strategies simply relying on beta exposure will face greater challenges, while the alpha value of active stock selection will significantly increase.

"Modern" Super Cycle: An Irreplicable Golden Era

To understand the current structural shift, it is first necessary to clarify the macro background of the past 40 years. Goldman Sachs defines the period from 1982 to 2007 as the "modern" super cycle, whose core driving force was a combination of one-directional and continuous tailwinds.

During this period, global inflation fell continuously from the highs of the 1970s. The Federal Reserve's tightening policy under Volcker pushed the US policy rate from around 10% to nearly 20%, after which rates entered a multi-decade downward trend, and the S&P 500's price-earnings ratio soared from a historical low of 7x.

Supply-side reforms led by Reagan and Thatcher sparked massive deregulation, privatization, and tax cut waves, with corporate tax rates continually falling in major economies.

At the same time, globalization accelerated.

The 1986 Uruguay Round negotiations, the 1994 signing of NAFTA, and China’s WTO accession in 2001 jointly created a golden age for world trade—between 1995 and 2010, global trade growth was twice as fast as global GDP growth.

Manufacturing outsourcing to low-cost regions suppressed labor costs; the shale revolution further reduced energy prices; the share of corporate profit in GDP rose to historical highs.

All these factors together created an era of low macro volatility, high corporate profits, and high asset returns—a period of “robust stability”.

Zero Interest Rate Era: A False Prosperity Driven by Valuations

The 2008 global financial crisis interrupted the normal evolution of the "modern" cycle, but the subsequent quantitative easing policies launched another unique market phase.

Goldman Sachs data shows that, although the economic recovery after 2009 was weaker than the average recovery since 1950, financial market performance far exceeded the historical average—stocks and bonds rose together, but with highly concentrated returns.

Against a backdrop of weak nominal GDP growth and scarce growth opportunities, massive capital rushed into assets that could provide certain growth. US tech stocks became the biggest beneficiaries. ROE (Return on Equity) for the tech sector kept accelerating, and software and cloud computing companies, leveraging pricing power from the migration from analog to digital, achieved explosive profit growth.

Between 2009 and 2022, global tech stocks outperformed non-tech stocks by over 200%. US stock outperformance over other markets was also significant, and the margin by which growth outperformed value hit record highs.

However, Goldman Sachs points out that these high returns during the period were largely dependent on ultra-low discount rates driving up valuations, not simply on fundamentals. With the fundamental change in the rate environment, this logic can no longer be sustained.

"Post-modern" Cycle: Seven Structural Shifts Reshaping Investment Logic

Goldman Sachs believes the Covid pandemic was the key inflection point launching the "post-modern" cycle, with subsequent events accelerating and amplifying the intensity of the structural changes. The report summarizes seven core changes:

First, the cost of capital has shifted higher. Supply chain disruptions triggered by the pandemic led to the first inflation shock of this century, with real interest rates rising sharply. Yields on 30-year German and Japanese government bonds rose from near zero to almost 4%, a shift whose magnitude cannot be underestimated.

Second, government debt has continued to surge. Public debt as a percentage of GDP rose from 55% to 124% in the US, from 37% to 95% in the UK, from 69% to 95% in the Eurozone, and from 22% to 102% in China. Competition among governments for global capital has intensified, further pushing up long-term interest rates.

Third, tariff barriers are being rebuilt. The effective US tariff rate is at its highest since the 1930s. The number of global trade policy interventions has surged, with discriminatory measures far outnumbering liberalizing ones.

Fourth, a geopolitical order restructuring. The rules-based international order established after WWII is under scrutiny. The policy uncertainty index has reached multi-year highs and governments are reassessing defense and trade relationships.

Fifth, energy and commodity security is now a higher priority. Supply chain security and energy independence have become core issues for government policy, driving continued increases in related capex.

Sixth, cyclical rebound in defense spending. The wars in Ukraine and Iran have led to dramatic increases in global defense spending. Long-time low-defense-spending countries like Germany and Japan have launched massive military expansion plans.

Seventh, the AI-driven capital expenditure revolution. The emergence of large language models has launched a new wave of technological innovation and unprecedented demand for capital expenditure.

The Core Engine of the AI Capex Super Cycle

The AI revolution is the most direct catalyst for this round of the capital expenditure super cycle.

Goldman Sachs data shows that in Q1 2026, S&P 500 component capex is expected to increase year-over-year by 38%, while buyback growth is only 1%—a sharp reversal from the post-crisis logic where market rewards were driven by buybacks, not real capex.

The spending plans of hyperscalers are particularly aggressive.

According to Goldman Sachs’ consolidated consensus data, combined capex by Amazon, Meta, Google, Microsoft and Oracle in 2026 will reach about $75.5 billion, about 80% higher than a year ago, up approximately 84% over 2025’s actual spending, and is projected to rise further to about $92 billion in 2027.

However, this capex wave is also reshaping value distribution within the technology sector.

Goldman Sachs points out that as hyperscaler capex continues to eat into free cash flow, questions are now arising as to whether these firms can sustain their previous levels of excess returns and profit margins.

At the same time, the rapid iteration of Agentic AI has triggered investor concerns over the disruption of the software business model: Software and IT services’ valuation premium relative to the global market has sharply narrowed in just a few months, while the premium for hardware and IT equipment stocks has converged with software. Goldman Sachs warns that investors are working hard to avoid an "Kodak moment" in the AI era.

Rotation of Market Leadership: Revaluation of Physical Assets and the Old Economy

The "post-modern" cycle is not only bringing a restructuring within the tech sector, but also a broader rotation of market leadership.

Goldman Sachs data shows that since 2025, emerging markets, gold, industrial metals, Japanese equities, and value styles have all outperformed the Nasdaq and S&P 500—strikingly reversing the post-crisis market landscape of the past decade or so.

There is a deep fundamental logic behind this rotation.

Goldman Sachs points out that growth for technology giants is no longer simply dependent on virtual world software applications, but increasingly reliant on physical infrastructure such as data centers and electricity supply.

This dependency generates a “cascade effect”—the capex spillover from tech giants flows into many long-neglected traditional value industries, creating structural revenue growth opportunities for sectors such as industrials, energy, and utilities.

Meanwhile, the surge in defense spending driven by geopolitics provides another source of demand for the "old economy". Traditional defense equipment, including airplanes, tanks, ammunition, and naval vessels, has seen soaring demand in countries like Germany and Japan, triggering systemic revaluations for related firms.

Positioning for Capex Beneficiaries—Embracing the Alpha Era

Within this macro framework, Goldman Sachs reiterates its clear investment preference for capex beneficiary stocks. The capex beneficiary portfolio tracked by Goldman Sachs has risen roughly 25% year-to-date, but Goldman believes the structural support remains solid.

In terms of sector composition, about 30% of the portfolio consists of industrials, 20% commodity producers, 15% tech stocks, and 10% utilities, with the rest spread across chemicals, construction, telecommunications, and real estate. Goldman Sachs also recommends four thematic baskets: Artificial Intelligence, Defense Spending, Power & Electrification, and HALO (Heavy Asset–Linked Stocks).

Goldman Sachs’s GS Capex Tracker covers approximately 4,000 companies across more than 20 end markets globally. The data shows capex beneficiary stocks’ relative returns usually lead the capex cycle by several quarters. The current reading remains constructive, with investment momentum spreading from data centers to energy, industrial, and infrastructure sectors.

Goldman Sachs emphasizes that in a higher capital cost environment, the room for valuation multiple expansion is limited; earnings growth and upward revisions to earnings forecasts will become the key drivers of excess returns. At present, earnings growth for capex beneficiaries is in the double digits, with consensus expectations for year-over-year earnings upgrades around 25%, providing fundamental support for a sustained valuation premium.

Goldman's final conclusion: The future market will deliver lower overall index-level returns, but the divergence in relative returns across regions, sectors, and styles will greatly expand. This means investors are entering a new era in which active management and alpha generation are more valuable than ever before.