Rise of the intangibles

The global investment landscape is undergoing one of its most significant structural shifts in decades. For years, “capital-light good, capital-heavy bad” has been close to gospel, and for much of the post-financial crisis era, markets rewarded “capital-light” business models. This included software platforms, digital advertising companies, and scalable technology firms capable of generating high margins with relatively limited physical investment. Today, that paradigm is changing.

A combination of geopolitical fragmentation, energy security concerns, industrial policy, and the rapid emergence of AI is driving a renewed focus on tangible assets and real-world productive capacity. Increasingly, markets are rewarding companies exposed to infrastructure, electrification, defence, robotics, semiconductors, and industrial automation. Sectors once viewed as cyclical or capital intensive but now positioned at the centre of a new global investment cycle.

The shift also reflects a broader recognition that the next phase of economic growth, with AI at the heart of that, will require enormous physical buildout. Data centres, power grids, advanced chips, cooling systems, fibre networks, and energy generation capacity all require substantial capital expenditure. In many ways, the AI revolution is becoming less about software and more about the physical systems underpinning it.

The impact of volatile geopolitics

At the same time, geopolitics is accelerating the trend. Rising tensions in the Middle East, continued competition between the US and China, and Europe’s renewed emphasis on defence spending have reinforced the importance of supply chain resilience and strategic autonomy.

This backdrop has created a markedly different market environment from the one investors became accustomed to over the last decade. In 2026, sectors tied to industrial capacity and national resilience have materially outperformed broader equity indices, supported by rising government spending, reshoring initiatives, and long-duration infrastructure investment programmes.

Defence is an example of that. What was once viewed as a politically sensitive or cyclical sector has become increasingly strategic for governments across developed markets. NATO members continue to increase military expenditure, while the rebuilding of depleted inventories following recent conflicts has driven sustained demand for aerospace, cybersecurity, and advanced manufacturing capabilities. The result has been a broad re-rating of defence-related equities as investors recognise that elevated spending levels may persist for years rather than quarters.

Convergence between digital transformation and physical infrastructure

Electrification presents a similarly powerful structural theme. The global push toward energy independence and decarbonisation is accelerating investment in grid modernisation, battery infrastructure, renewable generation, and transmission capacity. Importantly, the growth of AI is amplifying these demands. Training and deploying large AI models requires immense computational power, placing unprecedented pressure on electricity systems already struggling with rising demand.

This convergence between digital transformation and physical infrastructure is reshaping capital allocation decisions across industries. Governments and corporations alike are increasingly prioritising resilience, redundancy, and domestic production capacity over efficiency alone. The era of globalised supply chains is giving way to one defined by localisation and strategic investment.

For investors, perhaps the most important implication is that leadership within technology itself may also be changing.

The dominant winners of the last cycle were largely software and internet businesses that benefited from low capital intensity, recurring revenues, and network effects. However, AI is beginning to challenge some of those assumptions. Software significantly underperformed broader markets between late 2025 and early 2026 as investors questioned whether existing business models could maintain pricing power and competitive advantages in an AI-driven environment.

The parallels with the newspaper industry in the early 2000s are difficult to ignore.

At the height of the internet boom, many newspaper publishers underestimated how rapidly technology would erode their economic moats. Classified advertising disappeared, audiences fragmented, and distribution advantages became irrelevant in a digital-first world. Incumbents that once appeared dominant struggled to adapt as consumers embraced faster, cheaper, and more decentralised sources of information.

Today, parts of the software industry face a similar risk. AI has the potential to commoditise certain applications, reduce costs, and fundamentally alter how users interact with digital products. In some cases, the value may shift away from application-layer software providers toward infrastructure companies supplying the compute, chips, networking, and automation capabilities required to power AI ecosystems.

This does not mean software disappears. Rather, it suggests that investors may need to become more selective, distinguishing between businesses that genuinely benefit from AI and those vulnerable to disruption from it.

Importantly, the current environment also challenges a longstanding market preference for asset-light growth at any price. Higher interest rates, rising geopolitical uncertainty, and the increasing strategic importance of industrial capacity are encouraging a broader reassessment of valuation frameworks. Tangible assets, engineering expertise, manufacturing scale, and infrastructure ownership are once again commanding premium valuations.

Looking ahead

Over the coming decade, portfolio construction is likely to look materially different from the one that defined the 2010s. Investors may need greater exposure to industrials, energy infrastructure, automation, semiconductors, defence, and companies positioned to benefit from the physical buildout underpinning AI adoption and economic reorganisation.

The more things change, however, the more they remain the same. Periods of technological disruption have always created winners and losers. The key challenge for investors is recognising when market leadership is shifting, and adapting before consensus catches up.

Today’s market is not simply witnessing another technology cycle. It is experiencing a broader reordering of economic priorities, where strategic resilience, industrial capacity, and infrastructure matter once again. For long-term investors, understanding that transition may prove critical to generating returns in the decade ahead.