Temasek, Singapore's state-owned investment giant, has stated that a reversal in the artificial intelligence trade represents the biggest risk facing the market.
Temasek Chief Investment Officer Rohit Sipahimalani said, "We don't think this is imminent, but could there be turbulence in 2027? Yes, it's possible." Sipahimalani noted that even as US Treasury yields climb sharply, AI remains one of the key forces keeping US equities near record highs, pointing to strong earnings performance from the large companies tied to the technology.
He said that despite rising borrowing costs, the S&P 500 continues to hover near record territory, supported by "AI and the earnings momentum around the leading players." But the strength at the index level masks weakness beneath the surface. Sipahimalani pointed out that roughly half of the constituents in the Russell 3000 index have fallen at least 20% from their June highs, highlighting how heavily the market's resilience depends on a handful of winners.
He said a reversal in the AI trade could be triggered by multiple factors, including safety concerns that lead to tighter regulation, or signs that customers' spending on the technology fails to generate sufficient returns.
Still, Temasek remains bullish on artificial intelligence over the long term and continues to ramp up its investments in the sector. Sipahimalani said that about half of the investment firm's current AI exposure is allocated to publicly traded assets, and ideally that proportion would rise to around 70% to 75%. Compared with private assets that are harder to exit quickly, this would give Temasek greater ability to adjust its investments as the industry evolves. "One thing we recognize is that AI is a very fast-changing environment, things can easily change, 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 scale of exposure in these areas will differ from some other areas where we have greater flexibility," Sipahimalani said.