Goldman: Asset-Heavy Stocks Outperforming
Strategists at Goldman Sachs report that asset-heavy stocks are outperforming their asset-light peers as investors reassess risk amid fears of AI-driven disruption. The market is currently rewarding companies with tangible infrastructure like data centers and towers over pure-play software platforms, reversing a decade-long trend that favored capital-light business models.
- The "HALO" (Heavy Assets, Low Obsolescence) thesis highlights that a basket of capital-intensive stocks has outperformed a portfolio of capital-light companies by approximately 35% since the start of 2025. This trend is partly driven by higher real yields and geopolitical factors that are encouraging increased fiscal spending and a focus on manufacturing. - Major technology firms are becoming some of the largest capital spenders, fueling the demand for physical infrastructure. Companies like Amazon, Microsoft, Alphabet, Meta, and Oracle are projected to invest around $1.5 trillion in AI-related infrastructure between 2023 and 2026, a significant increase from their cumulative $600 billion investment prior to 2022. - The valuation approach for digital infrastructure is shifting from real estate-based metrics to power-based metrics. For data centers, investors are now underwriting megawatts (MW), with income models based on dollars per kilowatt, reflecting that power capacity is the primary value driver in the AI era. - Private equity sponsors have been highly active in acquiring digital infrastructure assets. Notable transactions include KKR and Global Infrastructure Partners' $15 billion take-private of data center operator CyrusOne and DigitalBridge and Crestview Partners' $1.5 billion acquisition of fiber ISP WideOpenWest (WOW!). These deals often involve significant leverage, with LBO models for stable infrastructure assets targeting debt levels of 4.0x-6.0x EBITDA. - Valuation multiples for asset-heavy digital infrastructure now rival or exceed those of asset-light software companies. Data center REITs have recently traded at EV/EBITDA multiples around 30.9x, while mature software companies, which peaked at median multiples of 26-40x in 2021-2022, have since seen their valuations normalize to the 17-22x range. - This market rotation reverses a long-standing trend from the post-Global Financial Crisis era (2010-2022), where asset-light models, particularly in the software and internet sectors, consistently delivered higher returns on invested capital (ROIC) and attracted premium valuations due to their scalability and lower capital requirements. - Financial sponsors are showing a strong preference for digital infrastructure due to predictable cash flows and the ability to use hard assets as collateral for debt. In the first half of 2025, private equity buyers paid a median M&A EV/EBITDA multiple of 10.1x across all sectors, compared to 8.6x for corporate acquirers, reflecting their willingness to pay a premium for assets that fit the LBO model. - The demand for fiber optic networks is also attracting significant private capital, driven by its essential role in connecting data centers, cell towers, and end-users. In a recent deal, a consortium including Hamilton Lane and Braemont Capital made a $500 million growth equity investment in Vero Networks to expand its fiber-to-the-premise (FTTP) and wholesale fiber networks.
