Singapore state investor Temasek has identified a reversal in the artificial intelligence trade as the biggest risk facing global financial markets. The warning comes as AI-linked companies continue to support equity valuations and attract massive capital.
Temasek International Chief Investment Officer Rohit Sipahimalani said the AI trade remains a key driver of market performance. However, he cautioned that any sharp reversal could create significant volatility.
“The unwinding of the AI trade is the biggest risk,” Sipahimalani said at the Milken Institute Asia Summit 2026 in Singapore. He added that Temasek does not see such a reversal as imminent, although markets could face “bumps” in 2027.
Sipahimalani also pointed to inflation as another major concern for investors. Persistent price pressures could keep bond yields elevated and limit the scope for easier monetary policy.
Higher rates can put pressure on equity valuations by increasing borrowing costs and reducing the relative appeal of riskier assets. Sipahimalani said inflation and the rates environment could eventually create a breaking point for equities. He identified AI and inflation as two key risks for global markets in 2027.
The warning comes as investors assess whether the enormous spending on AI infrastructure will translate into stronger profits. Major technology companies have committed hundreds of billions of dollars to chips, data centres and computing infrastructure.
Analysts expect hyperscaler capital expenditure on AI infrastructure to exceed $1 trillion by 2027. Temasek, however, remains comfortable with current spending levels and believes strong corporate balance sheets can support the investment cycle.
The upcoming earnings cycle will provide an important test. Investors will look for evidence that rising AI expenditure is producing sufficient revenue and productivity gains to justify current valuations.
Despite its warning, Temasek has no plans to retreat from AI. The fund currently has around 6% of its portfolio in AI-related investments and plans to increase that share to as much as 15% by 2031.
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