Corporate America has spent decades getting the most out of old machinery.

Now, that’s changing, as Corporate America’s PP&E is on the rise again. Firms are replacing old assets with new ones, be it manufacturing or data center infrastructure.

With PP&E rising again, this could be an indicator that the market still has much more room to run.

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Corporate America spent years getting the most out of old machines.

Now it is finally buying new ones.

That may sound mundane, but it’s one of the cleanest signals we have that this bull market still has another leg.

For the past few months, investors have been focused on the obvious headlines like oil prices and the war in Iran. And this month, the market is in an ecstatic mood because of the potential peace deal between the U.S. and Iran.

But the more important signal this month is not coming from geopolitics, but from corporate balance sheets.

Companies are investing again in a way they have not for a long time. We can see it in the net-to-gross property, plant, and equipment (“PP&E”) ratio, one of the best measures of whether corporate America is letting its asset base age or putting newer assets to work.

PP&E includes the physical assets companies use to run their businesses. Factories and data centers are all part of this long-term infrastructure bucket.

The “gross” number indicates how much companies originally spent on those assets. The “net” number subtracts depreciation, which is the accounting recognition that assets wear down over time.

So when the net-to-gross PP&E ratio is falling, it usually means companies are relying on aging assets. They are delaying replacements and trying to get by with what they already own.

When the ratio is rising, the opposite is happening. Companies are replacing aging assets with newer ones. They are expanding capacity. They are putting fresh productive capital into the economy.

After falling to an all-time low after the pandemic, net-to-gross PP&E has climbed back above its pre-pandemic level. It now sits at a fresh 10-year high.

Companies are not simply patching old equipment and calling it growth. They are investing in AI infrastructure and manufacturing capacity, alike. We still have a lot more power plants and related infrastructure needed to keep up with what companies are planning.

Those projects take years which means companies are likely still in the early innings of this spending cycle. And they matter because new assets create new earnings power.

A new factory can produce more efficiently. A larger data center can support more AI and cloud demand.

These investments do not always show up in profits immediately. But they lay the foundation for stronger earnings over time.

That is already starting to show up in expectations.

Uniform Earnings growth forecasts for 2026 have moved from roughly 15% to 19%. That is a big jump, and it fits perfectly with what the PP&E data is telling us.

Corporate America is not sitting around waiting for the Fed or the next geopolitical twist. And this is why the market has so much more room to run.

That does not mean the market moves in a straight line from here.

In fact, the peace announcement has made investors more optimistic in the short term. Sentiment has gotten a little too hot for our liking, which is why we are downgrading our Sentiment gauge to negative this month.

But that is a short-term concern. The medium- and long-term outlook remains strong.

As long as companies keep rebuilding their asset bases, those pullbacks should be treated as buying opportunities.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research