Goldman Sachs Interprets the "Post-Modern" Investment Cycle: AI and Geopolitics Driving Capital Expenditure Supercycle

June 17 – Goldman Sachs sees the global economy shifting away from the “modern” supercycle defined by low inflation, low interest rates, and globalization, toward a “post-modern” era marked by greater macro volatility, higher real interest rates, expanded government intervention, and deeper regionalization. In this new environment, the era where returns were driven by valuation expansion is over, with earnings per share (EPS) set to become the core factor powering market performance. Strategists including Peter Oppenheimer and Sharon Bell noted in a report titled “The Post-Modern Era: Embracing the Capex Boom” that higher capital costs will cap multiple expansion, while cross-sectional market returns are growing more dispersed. Strategies relying solely on beta exposure will face growing headwinds, making alpha generation from active stock selection far more valuable. The report highlights that a capex supercycle is taking shape, fueled by two key drivers: AI revolution-fueled private capital spending and geopolitics-driven increases in public government investment. Per Goldman Sachs data, S&P 500 constituent capital expenditures rose 38% year-over-year in the first quarter of 2026, while share buybacks grew just 1% YoY – a reversal of the post-financial-crisis dynamic where U.S. companies prioritized buybacks over capex. For AI-specific spending, consensus estimates compiled by Goldman Sachs project combined capex from Amazon, Meta, Google, Microsoft, and Oracle will hit roughly $75.5 billion in 2026, an 80% year-over-year jump, and an 84% increase from actual 2025 spending. That figure is projected to rise to around $92 billion by 2027. Goldman Sachs adds capex momentum is shifting beyond data centers to sectors like energy, industrials, and infrastructure. Tech giants’ growing reliance on physical infrastructure (e.g., data centers, power supply) is creating a “cascade effect,” spilling capital spending over to traditional value sectors including industrials, energy, and utilities. Geopolitical pressures are also boosting defense spending, lifting demand for core defense hardware such as planes, tanks, ammunition, and ships. The bank reiterated its preference for capex-focused investments, naming four thematic baskets: artificial intelligence, defense spending, power and electrification, and HALO (Heavy Asset-Light Organizations) stocks. Goldman Sachs notes index-level returns may trend flat, but relative returns across regions, industries, and styles will diverge – signaling investors are entering an era where active management and alpha generation will be increasingly critical.