The HALO Effect: Heavy Assets, Low Obsolescence in the AI Era

This report presents an analysis of the shifting dynamics in equity markets, particularly focusing on the concept of HALO—Heavy Assets, Low Obsolescence. It outlines how higher real yields, geopolitical fragmentation, and supply chain rewiring have led to a resurgence of tangible productive assets, which are now being rewarded by markets. The report details the impact of the AI revolution on traditional business models, particularly in the Software and IT Services sectors, while also highlighting the significant capital expenditures by major tech companies to maintain competitiveness. The analysis indicates that the valuation gap between Capital Intensive and Capital Light businesses has narrowed, with a notable shift towards companies with substantial physical capital. It further discusses macroeconomic factors supporting this trend, including fiscal expansion and a manufacturing rebound, and emphasizes the importance of capital intensity as a key driver of returns and valuations in the current investment landscape.