What is the capital cycle?

The capital cycle describes how industry returns can change as investment expands or contracts. High profits and strong demand can attract new competitors and encourage existing firms to add capacity. If supply later grows faster than demand, prices and profit margins may weaken. When investment slows, capacity can become scarce again, which may improve returns for surviving companies. The cycle can vary widely by industry and is not a timing tool for investors.

What is the asset growth anomaly?

The asset growth anomaly is a research finding that companies with high total asset growth have historically earned lower subsequent stock returns than companies with low asset growth. The finding is most closely associated with research by Michael Cooper, Huseyin Gulen, and Michael Schill, not Eugene Fama alone. Asset growth can result from acquisitions, capital expenditures, inventory growth, or other expansion. The relationship is historical and does not predict the return of any individual company.

Is gold’s supply actually shrinking?

Not in terms of current mine output. World Gold Council estimates show global mine production reached a record 3,672 tonnes in 2025, up about 1% from the prior year. The longer-term concern is discovery quality and volume. Industry research has found that major new discoveries have become far less frequent since 2020 than in prior decades, which could limit future mine supply growth. Current production can remain strong even as the pipeline of major discoveries weakens.

Is AI in a capital-cycle boom phase?

AI infrastructure investment shows features often associated with a capital-cycle expansion, including rising spending on chips, data centers, power capacity, and related equipment. Global AI-related investment is projected to exceed $1 trillion in 2026, while data-center electricity demand is expected to rise sharply through 2030. Whether this produces overcapacity depends on how quickly supply expands relative to customer demand, utilization, pricing, and revenue. A large investment cycle can support real technological progress while still creating valuation and margin risks for some companies.

The Capital Cycle Explained: How Supply Drives Markets More Than Demand

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The Capital Cycle Explained: How Supply Drives Markets More Than Demand | Dunham