Beyond the AI Hype: 5 Surprising Shifts Redefining the Modern Market
- Alpesh Patel
- 5 days ago
- 5 min read
The Vicious Cycle of Volatility
The recent performance of the artificial intelligence trade has been defined by significant "gyrations" that have caught even seasoned investors off guard. According to Goldman Sachs Research, the momentum factor a strategy capturing the tendency for recent performance to continue, which currently reflects the AI trade recently saw its highest realised annualised volatility in its 45-year history outside of a recession.
While the underlying fundamentals of AI infrastructure remain solid, this extreme volatility is creating what Chief US Equity Strategist Ben Snider describes as a "vicious cycle."
High levels of price instability encourage fund managers to reduce their portfolio positions to manage risk, which in turn can lead to further price swings. To navigate this environment, strategic investors are looking beyond the semiconductor craze toward a broader regime shift that is widening the gap between market winners and losers.
The End of the "Asset-Light" Era: Welcoming the Post-Modern Cycle
For the better part of four decades from the 1980s through 2020 the global economy was defined by disinflation, declining interest rates, and cheap capital. This environment naturally favoured "asset-light" technology models, facilitating a massive shift from the analog to the digital world.
However, we have entered what Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs Research, calls the "Post-Modern Cycle." This new era is shaped by supply constraints, higher inflation, and geopolitical fragmentation. In this regime, the market is beginning to reward physical infrastructure over the virtual assets that dominated the previous decade.
"Supply constraints started to push up inflation and interest rates. Real assets began to perform better on the back of rising prices, and, within financial markets, leadership started to shift toward areas that had previously been left behind, including industrials, emerging markets, Japan, and (until recently) gold." - Peter Oppenheimer
The "HALO" Effect: Why Heavy Assets are the New Safe Haven
A particularly counter-intuitive shift in the current market is the emergence of HALO companies those defined by Heavy Assets and Low Obsolescence.
While traditional software stocks have long been the gold standard for growth, they are increasingly vulnerable to the very technology they helped create. Software stocks faced pressure earlier this year as investors began to weigh the risks of disruption and rapid depreciation caused by new AI developments.
In contrast, companies with tangible assets and high barriers to entry currently offer greater visibility of cash flows. The "Old Economy" industries, once dismissed as capital-intensive laggards with excess capacity, are now being recognized as the essential backbone of the modern tech buildout.
These sectors are no longer just overlooked; they are becoming essential to the new tech infrastructure. In a world where virtual assets face constant disruption, the relative stability of physical infrastructure provides a necessary anchor for the modern portfolio.
The $920 Billion Spillover: AI's Massive Capex Boom
The scale of investment required to sustain the AI revolution is staggering. Goldman Sachs Research estimates that the largest AI providers will spend approximately $755 billion on capital expenditures (capex) in 2026, a figure projected to climb to $920 billion by 2027.
This spending is no longer confined to the tech sector; it is creating a "cascading effect" into traditional industries like energy and infrastructure.
As data centers and power requirements become central to growth plans, specific "winning" sectors have emerged across global markets. Based on performance data since 2025, these capital-intensive baskets have shown remarkable growth:
Power Infrastructure:
Europe: 77%
US: 68%
Japan: 25%
Asia (excluding Japan): 25%
Defense:
Europe: 90%
Japan: 71%
Asia (excluding Japan): 54%
US: 25%
The "Experience" Economy vs. The Labor Market Risk
For investors weary of the sky-high multiples in tech, the experience sector offers a rare combination: secular growth you can actually afford. These stocks cover spending on membership clubs, sports centers, theaters, and museums; areas that have seen a significant acceleration in consumer interest.
By the first quarter of 2026, US personal consumption expenditure on "Experiences" hit a peak of 6% year-over-year growth, far outstripping the growth in general services.
The appeal of this sector lies in its "undemanding valuations" and its inherent immunity to AI disruption. After all, a digital algorithm cannot replace the physical rush of a live concert or a club membership. However, this trade is not without risks.
Its success is tethered to the health of the consumer; any significant weakening in the labor market or a sharp rise in oil prices could dampen the current momentum. For those seeking a pivot from expensive tech, the experience economy represents a fundamental bet on the human desire for physical interaction.
The "Compounder" Opportunity: Growth at a Massive Discount
While the market often chases the latest trend, a group of stocks known as "Compounders" has been quietly outperforming on a fundamental level while being ignored by the broader valuation rally. These are companies characterised by strong earnings growth, high returns on capital, and strong free cash flow conversion.
Despite their strength, these stocks have recently lagged in price, leading to a historically large valuation discount. The data is striking: the median compounder stock has grown its earnings per share twice as fast as the median S&P 500 stock over the last three years. Crucially, the consensus of analyst estimates suggests this group will maintain its superiority in earnings growth for years to come.
For investors, the real value here is diversification; these stocks offer a way to step off the AI rollercoaster. "Our conversations with investors have also focused on the challenge of finding investment opportunities not tied to AI, with many sectors trading with a strong positive or negative correlation to AI and momentum in recent months." - Ben Snider
The M&A Surge: A $1.2 Trillion Signal
Another critical signal for investors is the resurgence of Mergers and Acquisitions (M&A). As of July 17, 2026, the volume of announced US M&A activity rose 32% year-over-year, reaching a total of $1.2 trillion.
This surge is inextricably linked to the "Post-Modern Cycle." As the cost of capital remains high, companies are increasingly using M&A to acquire the physical scale, infrastructure, or "Compounder" traits they need to compete.
Identifying these M&A candidates is a key tactical move for investors looking for stocks that haven't yet priced in this ongoing wave of consolidation. These targets represent a potential path to returns that is independent of the volatile AI infrastructure trade.
Want the Complete Visual Guide?
This article highlights the key themes reshaping today's investment landscape, but the full 12-page presentation goes much deeper, with exclusive diagrams, frameworks and charts that simplify the ideas discussed here.
Inside you'll find:
The HALO Framework for identifying capital-heavy winners
The geopolitical drivers behind the infrastructure boom
Regional performance comparisons
AI infrastructure spending flowcharts
Portfolio allocation frameworks
Investment diagnostics
📥 Download Concrete Over Code: Equity Allocation in the Post-Modern Cycle
Conclusion: A Return to Fundamentals
The overarching message of the current market is clear: we are shifting from a regime where "rising valuations" alone could drive returns to one where fundamental profit growth is the only sustainable way to win.
In an era of higher interest rates, the ability to generate a return that comfortably exceeds the higher cost of capital has become the ultimate differentiator between market winners and losers.
As the "Post-Modern Cycle" takes hold, stock selection and diversification have become more critical than ever. Investors must ask themselves a critical question: In a world where virtual assets are increasingly susceptible to AI disruption, is your portfolio "physical" enough to survive the shift back to tangible reality?
Disclaimer: This article is for educational and informational purposes only and does not constitute financial, investment or tax advice. Investments can fall as well as rise, and past performance is not a reliable indicator of future results. Always conduct your own research or seek independent professional advice before making investment decisions.
Alpesh Patel OBE
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