Temasek's Chief Investment Officer Warns: AI Trade Reversal Is the Biggest Market Risk, 2027 Could Bring Turbulence

Singapore state investor Temasek said a reversal in the artificial intelligence trade is the biggest risk facing the market. "We don't think it's imminent, but could 2027 have bumps? Yes, it could," Temasek Chief Investment Officer Rohit Sipahimalani said. Even as US Treasury yields climb sharply, AI remains one of the key forces keeping US stocks near record highs, Sipahimalani said, pointing to strong earnings from the large companies tied to the technology. He said the S&P 500 is hovering near record territory despite rising borrowing costs, supported by "AI and the earnings momentum around the leading players." But strength at the index level masks weakness beneath the surface. Sipahimalani noted that about half of the constituents in the Russell 3000 are down at least 20% from their June highs, underscoring how much the market's resilience rests on a handful of winners. He said a reversal in the AI trade could be triggered by several factors, including safety issues that prompt tighter regulation, or signs that customers' spending on the technology is not generating adequate returns. Still, Temasek remains bullish on AI over the long term and continues to ramp up its investments in the sector. Sipahimalani said about half of the investment firm's current AI exposure is in publicly traded assets, and ideally that share would rise to around 70% to 75%. That would give Temasek more ability to adjust its investments as the industry evolves, compared with private assets that are harder to exit quickly. "One thing we recognize is that AI is a very fast-changing environment, things can change very 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 the exposure in these areas will be different from some of the other areas where we have more flexibility," Sipahimalani said.