2Q26 preview: Searching for catalysts after the valuation pullback

Research evidence excerpt

2Q26 preview: Searching for catalysts after the valuation pullback

Goldman Sachs Americas Engineering & Construction

Key themes in E&C ahead of 2Q26 earnings

1. Can valuations hold up if hyperscaler capex growth begins to decelerate?

Investor attention is increasingly shifting toward 2027 hyperscaler capex, which will

ultimately shape the spending backdrop for the 2028-2030 construction cycle. Our

Americas Technology team continues to expect elevated hyperscaler investment over

the coming years, reflecting the persistent imbalance between AI demand and available

compute capacity, while our Portfolio Strategy team recently argued that 2027

hyperscaler capex expectations are too conservative. However, the most prevalent

investor debate is not the level of hyperscaler spending, but rather the second derivative

of that spending. Specifically, can contractor valuations remain elevated if hyperscaler

capex continues to grow but begins to decelerate.

Over the last three years, valuation multiples across our MEP coverage have closely

tracked forward organic growth expectations, particularly FY2 growth. While

headline-driven volatility, including DeepSeek and other AI-related developments, has

periodically created short-term dislocations, valuations have ultimately followed

underlying fundamentals, namely organic growth and margin expectations. Importantly,

our valuation backtesting suggests the forward growth expectations discounted by

current valuation multiples for our Buy-rated MEP coverage remain well below both

current hyperscaler capex growth rates and recently reported company growth rates. It

is also important to note that these forward growth expectations remain at record levels

and have yet to peak in our view. As a result, we believe elevated valuation multiples can