Beyond AI: Investing in the physical economy
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In this episode of Capital Ideas Podcast, host Ken Masson speaks with Britton Eziz, portfolio manager at Capital Group Dividend Value ETF, about a surprising shift in equity markets in early 2026. While the AI economy dominated 2025, Eziz argues we're now witnessing a potential renaissance in the physical economy, driven by a broadening of market leadership beyond the 'Mag 7' tech giants. She identifies three key catalysts: more balanced economic growth, massive capital expenditures by hyperscalers like Microsoft, Meta, and Amazon (projected at $650 billion in 2026), and the eventual productivity gains from AI that will benefit non-tech sectors. Eziz highlights underappreciated opportunities in industrial distribution, rail, utilities, and infrastructure—sectors that have been underinvested in for years but are now poised to benefit from renewed demand and operational improvements. She emphasizes the importance of identifying companies with strong management teams and structural tailwinds, while cautioning against 'value traps'—companies that appear cheap but are fundamentally declining. Her investment philosophy centers on finding businesses that have improved operations during downturns and are ready to capitalize on economic recovery. Key takeaways include: 1) The AI-driven capital spending boom is a powerful tailwind for physical infrastructure and industrial sectors; 2) Companies that have strengthened operations during tough times (e.g., rail, industrial distributors) are well-positioned for a rebound; 3) Management change can be a powerful catalyst, especially when tech-savvy leadership combines with operational excellence; 4) Investors should avoid 'melting ice cube' companies—those destined to decline due to structural disruption; 5) The renaissance of the physical economy is not a short-term rally but a long-term shift driven by reshoring, supply chain tightening, and infrastructure modernization. Eziz’s outlook is cautiously optimistic, grounded in fundamental analysis and on-the-ground insights.
AI-driven capital expenditures by hyperscalers are creating broad economic tailwinds for physical infrastructure and industrial sectors.
Companies that improved operations during post-COVID downturns are now poised to benefit from a recovery in demand and pricing power.
Management changes, especially when combining tech expertise with operational excellence, can be a powerful catalyst for long-term value creation.
Avoid 'value traps'—companies that appear cheap but are structurally declining due to technological disruption.
The physical economy is entering a renaissance, driven by reshoring, supply chain resilience, and infrastructure modernization.
The Shift Beyond AI: A New Era for the Physical Economy
“I think there's a potential now to see a broadening out of the economy even beyond just that narrow area or a narrow group of companies.”
Market Dynamics: Valuations, PMI, and the Case for Broadening
Eziz analyzes market data, including the equal-weight S&P 500's discount and the first positive PMI reading in years, to argue that the economy is emerging from a prolonged downturn and that value stocks are poised for catch-up gains.
The Hyperscaler Capital Expenditure Boom: A Catalyst for the Physical Economy
“The $650 billion of CapEx exceeds the CapEx of the 20 largest non-tech companies.”
Opportunities in Industrial Distribution, Rail, and Utilities
“They should be able to improve their margins. And there's a significant opportunity for them to improve their cash flow as well.”
Management Change, Value Traps, and the Long-Term View
Eziz discusses the importance of management quality (using XPO as an example), warns against value traps like Blockbuster or Kodak, and stresses the need for a long-term, fundamental approach to investing in a time of rapid change.
“The $650 billion of CapEx exceeds the CapEx of the 20 largest non-tech companies.”
“I think there's a potential now to see a broadening out of the economy even beyond just that narrow area or a narrow group of companies.”
“You have to be aware of the positive changes that the market hasn't yet anticipated, but also try to avoid the negative changes.”
Host
Guest
Britton Eziz
person
Ken Masson
person
MAG-7
organization
CapEx
other
XPO
organization
S&P 500
other
ISM Purchasing Managers Index
other
Wesco International
organization
Capital Group Dividend Value ETF
organization
Amazon
organization
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