Competition for Capital: The New Reality Reshaping Equity Markets

Two forces are reshaping the investment landscape with unusual intensity. In a September 17, 2026 report¹ published by Goldman Sachs, Peter Oppenheimer and his co-authors argue that the collision of AI-driven capital demand and rising interest rates is not incidental. It is structural. And it is forcing a reassessment of how equity markets are valued, who benefits, and where the risks now concentrate.

The Cost of Capital Has Changed

The starting point is deceptively simple. As Oppenheimer observes, "there are two themes dominating our investor conversations: the impact of AI and the rise in interest rates." The two are not parallel stories. They are the same story. AI infrastructure spending has devoured free cash flow at the hyperscalers, forcing companies to issue more debt and equity to fund growth. Meanwhile, governments are borrowing more to finance defense upgrades, critical infrastructure and energy security, adding to the pressure on bond markets at precisely the moment when cyclical inflation is already pushing policy rates higher. As recently as 2022, 30-year bond yields in Germany and Japan were close to zero. Today, yields are meaningfully higher across all major economies, and the cost of capital has risen accordingly.

Earnings Have Held. But for How Long?

The equity market has absorbed this repricing better than many expected, and the reason is clear. Oppenheimer notes that "earnings growth has been the main driver of equity returns over the past 18 months in all regions." Technology profits remain robust. Energy prices have lifted commodity sector earnings. Banks have benefited from steeper yield curves and strong private sector balance sheets. Industrials have ridden the AI capex wave through the "pick and shovels" of infrastructure buildout. Broad-based earnings growth has supported forward PE compression rather than market deterioration: the S&P 500's forward multiple has declined from 22x to 19x, roughly in line with its long-run average, even as the index trades near all-time highs.

The Geography of Outperformance Has Shifted

One of the more striking reversals documented in the report is geographic. Since 2025, "the US equity market has been the weakest of the major regions," a significant departure from fifteen years of post-crisis dominance. The sharper de-rating of US equities, combined with improving earnings across European, Japanese and Asia Pacific markets, has broadened the opportunity set for investors. Oppenheimer is direct about the implication: a more geographically diversified portfolio has rewarded investors in ways that would have looked counterintuitive even two years ago.

Technology: A De-rating Without a Bubble

The hyperscalers present the most nuanced case. Their capex spending has been extraordinary, with year-over-year growth exceeding 35% for ten consecutive quarters. The combination of higher capital costs and greater capital intensity has compressed their valuations: "the dominant capex hyperscalers in the US now have a forward PE close to the average of the rest of the market." Crucially, Oppenheimer argues this does not constitute a classic bubble. Valuations are not at 1990s extremes. Balance sheets are strong. Interest coverage ratios for the aggregate S&P 500 rank in the 99th percentile relative to the past two decades. And demand for compute continues to accelerate, with Microsoft declaring its intention to triple data centre capacity in six years, and Nvidia reiterating a 2030 AI total addressable market outlook of $3 to $4 trillion.

The more relevant risk, Oppenheimer argues, is not valuation but an earnings bubble. The banking sector's brief ascent to the top of the S&P 500 before the 2008 financial crisis is the cautionary analogy. Banks did not experience extreme valuation multiples at the time. Their earnings surge simply proved unsustainable when leverage unwound. The question hanging over the AI buildout is whether the demand justifying this spending will prove equally durable.

Differentiation Is Now the Strategy

Stock correlations across major regions and within the technology sector have fallen to multi-year lows. The "magnificent seven" is no longer a monolith. Sector rotations are producing meaningful performance divergence. Industrials now trade at a higher forward PE than Information Technology in absolute terms, with valuations near the 90th percentile of their 20-year range. Oppenheimer's conclusion is measured but clear: "we remain neutral on equities alongside other asset classes on a 3-month horizon, but continue to be overweight equities over 12 months," with diversification across geographies, sectors and factors as the central recommendation.

5 Key Takeaways for Advisors and Investors

1. The cost of capital has structurally reset. Higher bond yields are not a temporary condition. Both AI capex cycles and government borrowing needs are competing for the same pool of capital, and advisors should plan portfolios around a durably higher discount rate environment.
2. Earnings are the only lever left. With valuation expansion unlikely given bond yield levels, future equity returns depend almost entirely on profit growth. Monitor earnings revisions closely across regions and sectors.
3. Geographic diversification is delivering. US equities have underperformed international peers since 2025. A more balanced allocation to European, Japanese and Asia Pacific equities is now supported by fundamentals, not just diversification theory.
4. Technology is not a bubble, but it is not without risk. The earnings sustainability of the AI buildout is the real question. Advisors should distinguish between hyperscalers absorbing capex pressure and the broader ecosystem of industrial and infrastructure beneficiaries, which carry more visible cash flows.
5. Correlation breakdown creates alpha opportunity. Falling pairwise correlations within and across sectors mean that stock and sector selection matter more than they have in years. Active positioning, and genuine diversification, are likely to outperform passive concentration.

Footnote:

1 Oppenheimer, Peter, Sharon Bell, Guillaume Jaisson, Elena Porfidia, and Jacinta Feng. "Competition for Capital." Goldman Sachs Global Strategy Views, Goldman Sachs Portfolio Strategy Research, 17 Sept. 2026, https://www.gspublishing.com/content/research/en/reports/2026/09/17/2f7c70cb-3443-4cd3-b6f5-b7f9923851ea.pdf.