SINGAPORE — An unwinding of the artificial intelligence trade poses the biggest risk to markets, according to Singapore's state-owned investment giant Temasek.
"We don't see that as imminent, but will you have bumps in 2027? Yeah, possibly yes," Rohit Sipahimalani, Temasek's chief investment officer, said at the Milken Institute Asia Summit in Singapore.
AI has been one of the key forces keeping U.S. stocks near record highs even as Treasury yields have surged, Sipahimalani said, pointing to the earnings strength of major companies tied to the technology.
The S&P 500 has remained around record territory despite the rise in borrowing costs, supported by "AI and the earnings momentum around the key players," he said.
But the strength at the index level masks weakness beneath the surface. Sipahimalani noted that roughly half the stocks in the Russell 3000 were at least 20% below their June highs, highlighting the degree to which the market's resilience has depended on a small group of winners.
A reversal in the AI trade could be triggered by several factors, he said, including safety concerns that lead to tighter regulation or signs that customers are failing to generate sufficient returns from their spending on the technology.
Temasek, however, remains bullish on AI over the longer term and has continued to increase investments into the sector. About half of the investment firm's AI exposure is currently in publicly traded assets, a proportion it would ideally increase to around 70% to 75%, Sipahimalani said.
That would give Temasek greater ability to adjust its investments as the industry evolves, compared with private assets that can be harder to exit quickly.
"One of the things we recognize is that AI is such a fast-changing environment that things could change quite easily, and you have to be able to pivot," he said.
Temasek has invested in private AI model developers such as OpenAI and Anthropic, but "the size of exposure there would be different compared to some of the other areas where we have more flexibility" Sipahimalani said.