Selective German equity opportunities amid fiscal stimulus, CAPEX growth and structural industrial change: Goldman Sachs sees a fiscal-led German recovery, but urges selective exposure to structural growth beneficiaries.

Overview

This Europe Weekly Kickstart summarizes feedback from Goldman Sachs' 15th German Corporate Conference. It argues that fiscal support and a CAPEX upcycle are improving Germany's outlook, but the recovery is uneven: technology- and infrastructure-linked businesses are strengthening while autos, chemicals and cautious consumers remain under pressure.

Core views

German macro data improved ahead of the conference. Federal expenditure reached €50.0bn in August, around 10% above Goldman Sachs' forecast and more than 15% higher year on year. The euro-area composite PMI rose 1.1 points to 53.1, its highest level in 41 months, with Germany the main driver: its composite PMI increased 2.0 points to 53.8, services reached 52.9 and manufacturing remained firm at 55.9. Survey respondents identified greater investment spending as support for activity, while the Ifo business-climate index rose to 89.9 for a fifth consecutive monthly gain. The report sees Germany's fiscal pivot as supportive of growth, although transmission to corporate earnings remains gradual. A €500bn investment programme and higher defence spending should provide a fiscal impulse of around 0.7 percentage points of GDP in 2026 and 0.5 points in 2027. Defence procurement is expected to reach roughly €120bn, or 2% of GDP, with strong order momentum in military platforms and services. The wider CAPEX cycle is also intact: investment growth is expected to reach 13% in 2026 against a historical median of 2%, and data centres, semiconductors and utilities now account for almost 40% of total CAPEX, up from 22% in 2022. The benefits remain uneven, however: infrastructure spending is not yet material for every expected beneficiary and some industrial customers continue to defer investment. Early gains are more visible in warehouse logistics, construction and commercial-vehicle fleet replacement. Management commentary indicated a bifurcated recovery. Semiconductors, optics, data centres, defence, warehouse automation and selected industrial software saw improving bookings, utilisation and backlogs. AI is broadening from software and data-centre revenues into physical AI and productivity applications: Siemens has about €6bn of data-centre orders and targets at least 20% efficiency gains from its One TECH programme; KION is deploying autonomous handling and pursuing humanoid-robotics partnerships; BMW and Mercedes-Benz are piloting humanoid robots; and Daimler Truck's Torc unit targets autonomous driver-out operations by late 2026. By contrast, legacy autos and chemicals remain challenged. Volkswagen estimates about 500,000 units of European overcapacity and intends to halve its model range under a €30bn efficiency programme. Inflation continues to pressure margins while consumers remain cautious. Electricity, fuel, electronics, logistics and labour costs were recurring concerns, and BMW cited more than €1bn of foreign-exchange and raw-material headwinds in FY26. The ability to pass costs through depends on differentiation: Rational raised US prices by 4.9% and plans a further 2.9% increase elsewhere, while commoditised industries face greater difficulty. Consumer-facing companies reported weak confidence and heavier promotions, especially among price-sensitive German consumers. Goldman Sachs does not see a broad consumer collapse: Douglas still expects its underlying market to grow 2.0-2.5%, Vonovia expects roughly 4% like-for-like rental growth, and Sixt derives 80% of sales from direct traffic. Retailers are using self-help measures and synergies to protect margins; Zalando has brought forward its €100mn ABOUT YOU synergy target to 2028. China's shift from export destination to competitor is described as Germany's largest structural challenge. Chinese truck makers have gained 30-40% shares in parts of Latin America and the Middle East and are entering Germany at 15-20% price discounts; discounts in mid-tech warehouse equipment can reach 50%. Indian manufacturers are also gaining share in agricultural machinery. This pressures autos, chemicals and selected industrials, but German firms are responding through local-for-global manufacturing. The report argues that dense aftermarket networks, proprietary dealer distribution and demanding uptime requirements remain defensive advantages that lower-cost entrants cannot easily replicate. The market effect is increasingly concentrated because autos and chemicals now represent only 7% and 5% of German market capitalization, respectively, versus almost 40% combined a decade ago; technology, defence and AI-linked industrials increasingly drive earnings. Goldman Sachs remains positive but selective. Consensus expects 17% EPS growth for German equities in 2027 versus 9% for the STOXX 600, while the DAX trades at about 15x forward earnings, a 25% discount to the US. Yet the top valuation quartile among the 100 largest German companies trades roughly 10 P/E points above the bottom quartile, a 93% premium, making stock selection important. Investor engagement was strongest in AI, defence and high-quality industrial compounders, whereas domestic exposures and cyclical suppliers were less crowded. Robust balance sheets, buybacks and non-core disposals provide downside support, but the report differentiates scalable platforms delivering structural growth and operating leverage from more complex industrial groups that must rely on restructuring and cost savings. It therefore prefers Fiscal, Defence, HALO/CAPEX and German Domestic baskets over broad index exposure.

Analysis framework

The report combines German macro-surprise indicators and fiscal projections with management feedback from more than 170 corporates. It then links spending, investment, competitive conditions, cost inflation and consumer demand to sector and basket-level earnings, valuation and positioning comparisons.

Methodology notes

• Macroeconomics

  Fiscal-impulse analysis

  The report estimates how the investment programme and defence spending could add to German GDP growth in 2026 and 2027.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  CAPEX transmission through infrastructure, defence, data centres, semiconductors and utilities

  The analysis traces higher public and private investment into orders, bookings and demand for corporate suppliers and service providers.

• Valuation methodsP/E and PEG Valuation

  Forward P/E and PEG comparisons

  The report compares DAX forward earnings multiples with the US and measures valuation dispersion across German companies, alongside a growth-at-a-reasonable-price framing.

• Event-Driven and Behavioral FinanceFund-Flow and Positioning Analysis

  Investor engagement and basket positioning

  Conference engagement and relative basket performance are used to distinguish crowded structural-growth areas from less crowded domestic and cyclical exposures.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Fiscal Infrastructure Spending basket (GSSTFISC)

  Preferred exposure to Germany's fiscal and infrastructure impulse.

  Strengths

  Expected 2026 and 2027 EPS growth of 29.5% and 17.8%, respectively.

  Weaknesses

  Near-term infrastructure benefits are not yet material for every potential beneficiary.

  Comparison

  Preferred over broad index exposure.

  Risks

  Delayed project transmission and deferred customer investment decisions.

• Capex Beneficiaries basket (GSSTCAPX)

  Exposure to the data-centre, semiconductor, utility and industrial-investment cycle.

  Strengths

  Investment growth is projected at 13% in 2026; the basket showed 17.6% YTD relative total return.

  Weaknesses

  Benefits are uneven across industrial companies.

  Comparison

  Supported by strong management tone in new-growth verticals.

  Risks

  CAPEX delays or weaker bookings, utilisation and backlogs.

• Defence-related companies

  Beneficiaries of rising procurement and defence spending.

  Strengths

  Procurement is expected to reach roughly €120bn, with strong order momentum.

  Comparison

  Investor engagement was among the strongest in defence.

• German autos and chemicals

  Legacy sectors exposed to overcapacity, cost inflation and Chinese competition.

  Strengths

  Some firms retain aftermarket, dealer-network and uptime-related defensive advantages.

  Weaknesses

  European overcapacity, difficult cost pass-through and price competition.

  Comparison

  Their combined German market-capitalization weight is now 12%, versus almost 40% a decade ago.

  Risks

  Further competitive pressure from Chinese and Indian manufacturers.

Key data

• German fiscal impulse0.7pp of GDP in 2026; 0.5pp in 2027Expected contribution from the €500bn investment programme and higher defence spending.
• German investment growth13% in 2026Versus a historical median of 2%.
• CAPEX concentrationAlmost 40%Share of total CAPEX from data centres, semiconductors and utilities, up from 22% in 2022.
• German equity EPS growth17% in 2027Consensus expectation, versus 9% for the STOXX 600.
• DAX valuationAround 15x forward earningsAbout a 25% discount to the US.
• German valuation dispersion10 P/E points; 93% premiumDifference between the top and bottom valuation quartiles among the 100 largest German companies.
• Chinese competitive discounts15-20% in German trucks; up to 50% in mid-tech warehouse equipmentIllustrates intensifying competition for German industrial firms.

Impact & implications

The report expects fiscal spending and the CAPEX cycle to favor defence, infrastructure, data-centre, semiconductor, automation and selected domestic-exposure themes. It cautions that broad German-index exposure masks substantial differences between structural-growth businesses and legacy sectors facing overcapacity, cost pressure or Chinese competition.

Risks

• Fiscal and infrastructure spending may reach corporate beneficiaries only gradually, while industrial customers may continue to delay investment.
• Autos, chemicals and selected industrials face price competition from Chinese and Indian manufacturers, as well as European excess capacity.
• Energy, labour, logistics, currency and commodity costs could continue to pressure margins, especially where pricing power is limited.
• Weak consumer confidence and elevated promotional intensity may constrain consumer-facing demand and profitability.

What to watch

• Implementation and corporate transmission of the €500bn investment programme and higher defence spending.
• Bookings, utilisation and backlog trends in semiconductors, optics, data centres, defence, warehouse automation and industrial software.
• The pace of Chinese and Indian market-share gains and the ability of German firms to defend pricing through service networks and distribution.
• Consumer confidence, promotional intensity, price pass-through and cost developments.
• Execution of restructuring, efficiency programmes, buybacks, non-core disposals and targeted synergies.