Goldman Sachs In-depth Analysis of the "Postmodern" Investment Landscape: The Era of Winning by Valuation Expansion Is Over, Capital Expenditure Supercycle Quietly Arrives

The global investment paradigm is undergoing a profound structural transformation.

According to Chasing Wind Trading Desk, Goldman Sachs pointed out in its latest global strategy report that the “modern” supercycle characterized by low inflation, low interest rates, and globalization has become history, and a “postmodern” cycle marked by higher macro volatility, higher real interest rates, stronger state intervention, and regionalization is reshaping the fundamental logic of stock returns.

Goldman Sachs strategists Peter Oppenheimer, Sharon Bell and others make clear in this report entitled "The Postmodern Cycle: Navigating the Capital Expenditure Boom" that the era of returns driven by valuation expansion is ending, and per-share earnings growth will become the core variable dominating market performance. Meanwhile, the wave of private capital expenditure spawned by the AI revolution, combined with the surge in government public investment driven by geopolitics, is forming a capital expenditure supercycle with synchronous resonance.

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

The "Modern" Supercycle: An Irreplicable Golden Age

To understand the current structural transformation, it is necessary to first clarify the macro backdrop of the past 40 years. Goldman Sachs defines 1982 to 2007 as the “modern” supercycle, whose core drivers are the aggregation of a series of one-way, continuous tailwinds.

During this period, global inflation continuously declined from the high levels of the 1970s. The Federal Reserve’s Volcker tightening pushed U.S. policy interest rates from about 10% to nearly 20%, after which rates entered a decades-long downward trajectory, and the S&P 500's price-to-earnings ratio climbed from a historical low of 7 times.

Supply-side reforms led by Reagan and Thatcher brought waves of deregulation, privatization, and tax cuts, with corporate tax rates continually declining across major economies.

Meanwhile, the globalization process accelerated.

The 1986 Uruguay Round negotiations, the signing of NAFTA in 1994, and China’s accession to the WTO in 2001 together built a golden age for world trade—between 1995 and 2010, global trade growth reached twice the rate of global GDP growth.

Manufacturing outsourcing to low-cost regions suppressed labor costs, the shale gas revolution in the energy sector further lowered energy prices, and corporate profits as a proportion of GDP reached historical highs.

All these factors together created an era of low macro volatility, high corporate profitability, and high asset returns—the era of "Great Moderation."

The Zero Interest Rate Era: Illusory Prosperity Driven by Valuations

The 2008 global financial crisis interrupted the normal cycle of the "modern" era, but the subsequent quantitative easing policies ushered in another unique market trend.

Goldman Sachs data shows that although post-2009 economic recovery was weaker than average since 1950, financial markets performed well above historical averages—stocks and bonds both rose, but returns were highly concentrated.

Amid sluggish nominal GDP growth and scarcity of growth, capital flowed massively into assets offering certainty of growth. U.S. tech stocks became the biggest beneficiaries. The tech sector’s ROE accelerated continuously; software and cloud computing companies leveraged pricing power gained from the migration from analog to digital to achieve explosive profit growth.

Between 2009 and 2022, the excess returns of global tech stocks over non-tech stocks exceeded 200%, and the U.S. market’s excess returns over other markets were also notable, with growth style outperforming value style by a historic margin.

However, Goldman Sachs points out that high returns during this period were largely dependent on ultra-low discount rates continually lifting valuations, rather than fundamental drivers. This logic can no longer be sustained following a fundamental shift in the interest rate environment.

The "Postmodern" Cycle: Seven Structural Shifts Reshaping Investment Logic

Goldman Sachs believes the COVID pandemic was a key trigger for the “postmodern” cycle, with a series of events accelerating and amplifying the intensity of structural changes. The report lists seven core shifts:

First, the central hub of capital costs has moved higher. The pandemic-triggered supply chain interruptions led to the first inflation shock this century, and real interest rates have surged. German and Japanese 30-year government bond yields have risen from near zero to almost 4%, a turnaround of remarkable magnitude.

Second, government debt continues to climb. U.S. public debt/GDP ratio rose from 55% to 124%, UK from 37% to 95%, Eurozone from 69% to 95%, and China from 22% to 102%. Competition for global capital among governments has intensified, further pushing up long-term rates.

Third, tariff barriers are being rebuilt. U.S. effective tariff rates are at the highest levels since the 1930s, and the number of global trade policy interventions has surged, with discriminatory measures greatly exceeding liberalization measures.

Fourth, the geopolitical order is being restructured. The rules-based international order established after WWII is being questioned, policy uncertainty indices are at multi-year highs, and governments are re-examining defense and trade relations.

Fifth, priority is being given to energy and commodity security. Supply chain security and energy independence have become core policy themes, driving sustained capital spending in related fields.

Sixth, cyclical rebound in defense spending. Wars in Ukraine and Iran have pushed global defense spending up sharply, and countries like Germany and Japan, long with low defense spending, have begun massive expansion plans.

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

Core Engines of the AI Super Spending Cycle

The AI revolution is the direct catalyst of this round of capital expenditure supercycle.

Goldman Sachs data shows that in Q1 2026, the year-over-year growth rate of capital expenditure for S&P 500 constituent stocks reached 38%, while the growth rate of buybacks was only 1%, a sharp reversal from post-financial-crisis years when companies were rewarded by markets for buybacks rather than capital expenditure.

Ultra-large-scale cloud computing companies (Hyperscalers) are especially aggressive in their spending plans.

According to Goldman Sachs’ compilation of consensus forecasts, Amazon, Meta, Google, Microsoft, and Oracle's combined capital expenditure in 2026 is projected to reach about $75.5 billion, up about 80% from a year earlier and 84% from actual 2025 spend; 2027 is expected to further rise to about $92 billion.

However, this wave of capital spending is also reshaping the value distribution within the technology sector.

Goldman Sachs points out that as hyperscalers’ capex continues to erode free cash flow, the market is starting to question whether they can maintain previous excess returns and profit margins.

Meanwhile, rapid iterations in Agentic AI have triggered investor concerns about the disruption of software business models—the valuation premium of software and IT services versus the global market has narrowed sharply in just a few months, while the premium for hardware and IT equipment has converged with that of software. Goldman Sachs warns that investors are striving to avoid the "Kodak moment" in the AI era.

Rotation of Market Leadership: Re-rating of Physical Assets and Old Economy

The “postmodern” cycle brings not only structural adjustments 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 stocks, and value style have outperformed Nasdaq and S&P 500, a marked reversal from post-crisis market patterns.

There is fundamental logic behind this rotation.

Goldman Sachs notes that the growth of tech giants is now increasingly dependent not just on software applications in the virtual world, but also on physical infrastructure such as data centers and electricity supply.

Such dependency creates a "cascade effect"—capex by tech giants spills over to long-ignored traditional value industries, bringing structural revenue growth opportunities to industrials, energy, utilities and other sectors.

Meanwhile, geopolitically driven surges in defense spending are creating new demand for another type of "old economy" industry. Demand for traditional defense equipment—planes, tanks, ammunition, warships and more—has surged in Germany, Japan and other countries, with the valuations of related companies undergoing systemic re-rating.

Positioning in Capital Expenditure Beneficiaries, Embracing the Alpha Era

Within the above macro framework, Goldman Sachs reiterates its preference for stocks benefiting from capital expenditure. The global capex beneficiary portfolio tracked by Goldman Sachs has risen about 25% year-to-date, yet GS believes structural support remains strong.

From a sector perspective, the portfolio consists of about 30% industrials, about 20% commodity producers, about 15% tech stocks, and about 10% utilities, with the rest spread across chemicals, construction, telecommunications, and real estate. Goldman Sachs also recommends four thematic investment baskets: AI, defense spending, power and electrification, and HALO (heavy asset stocks).

GS's capex tracker covers about 4000 companies and more than 20 end markets globally, with data showing that capex beneficiary stocks typically outperform several quarters ahead of the capex cycle. The current reading remains constructive, with investment momentum spreading from data centers to energy, industrials and infrastructure.

Goldman Sachs emphasizes that in an environment of higher capital costs, the room for valuation multiple expansion is constrained; earnings growth and upward earnings revisions will become the core drivers of excess returns. Currently, capex beneficiary stocks’ earnings growth is in the double-digit range, with consensus expectations for earnings up about 25% year-on-year, providing fundamental support for sustained valuation premium.

GS’s final conclusion: The future market will show lower overall index returns, but relative returns across regions, industries, and styles will be significantly differentiated. This means investors are entering a new era where active management and alpha generation are more valuable than ever.

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