Wall Street is undergoing a notable shift in investor sentiment, with a flight to safety occurring not in traditional havens, but in companies possessing substantial physical assets. This move comes as anxieties surrounding the potential disruption caused by artificial intelligence continue to roil markets, particularly impacting sectors previously considered high-growth and future-proof.
The technology sector, once the darling of investors, has experienced a significant correction. The S&P 500 software sub-index recently hit its lowest point since April of last year, shedding $1.2 trillion in market capitalization in under a month. Concerns are mounting that advancements in AI could fundamentally reshape industries, rendering existing business models obsolete. This fear has extended beyond software, impacting wealth management and insurance firms as well.
Conversely, sectors anchored by tangible assets are experiencing a resurgence. The S&P 500 utilities sub-index has climbed 9 percent, while energy stocks have gained 23 percent. These sectors, often overlooked in favor of asset-light tech companies in recent years, are now attracting renewed interest as investors seek stability and resilience.
Guillaume Jaisson, European strategist at Goldman Sachs, articulated the underlying rationale for this shift. “All these capital-light businesses that could scale historically are also the ones that could be easily disrupted,” he stated. He further emphasized the difficulty in replicating capital-heavy businesses, noting that “it takes time.” This inherent resilience makes them “more insulated from the risk around AI.” Goldman Sachs has dubbed these buoyant sectors “Halo” stocks – characterized by heavy assets and low obsolescence.
The Nasdaq index, heavily weighted towards technology stocks, showed some stabilization on , rising 0.3 percent in early trading, but the underlying anxieties remain palpable. Several prominent US software companies – Intuit, AppLovin, Gartner, and Workday – have each seen their stock prices decline by at least 40 percent year-to-date. In contrast, companies like Generac Holdings (power generation) and Corning Inc (glass manufacturing) are among the S&P 500’s leading performers this year. Oil giants Exxon and Chevron have also experienced gains exceeding 20 percent in .
The trend extends beyond the US. In Europe, Kongsberg Gruppen (defense and energy supplier) and Frontline Plc (oil tanker shipping) have emerged as the biggest stock market winners this year, both posting gains of approximately 50 percent since the start of the year.
Goldman Sachs has launched a new European basket of “capital intensive” stocks, which has outperformed the broader Stoxx Europe 600 index by a significant margin – 12 percent versus 6 percent year-to-date. The bank’s “capital light” basket, conversely, is down 2 percent over the same period.
This shift in investor preference is also evident in emerging markets, where chipmakers, miners, and heavy manufacturers have driven a nearly 13 percent gain in an MSCI benchmark.
Alex Temple, a credit portfolio manager at Allspring Global Investments, suggests that the recent market volatility is partly a result of investors overextending themselves into sectors they didn’t fully understand, and then overreacting to predictions of AI disruption. He pointed to a recent report from Citrini Research as a catalyst for Monday’s software sell-off, highlighting the potential for fear-driven market reactions.
The preference for capital-light business models was particularly pronounced in the low-interest-rate environment following the global financial crisis. Investors favored easily scalable businesses during a period of readily available and inexpensive borrowing. However, rising interest rates since the pandemic, coupled with increased investment in capital-intensive sectors like defense and infrastructure, have put pressure on the valuations of these previously favored companies.
Gerry Fowler, head of derivatives strategy at UBS, succinctly summarized the current dynamic: “The thing that has been working best for the last 15 years is now the most vulnerable.” He emphasized the growing concern among investors regarding the reliance on intangible assets and intellectual property, questioning the long-term sustainability of business models built on these foundations.
The current market environment represents a significant recalibration of risk assessment. Investors are increasingly prioritizing tangible assets, durable competitive advantages, and resilience to technological disruption. While the long-term implications of AI remain uncertain, the immediate effect has been a flight to safety in the form of “Halo” stocks – companies built on the foundations of heavy assets and enduring value.
