Temasek CIO Warns AI Trade Reversal Is Biggest Market Risk, Sees Possible Bumps in 2027

Temasek's Chief Investment Officer Rohit Sipahimalani said the reversal of the artificial intelligence trade is the biggest risk facing markets, adding that while the risk is not imminent, 2027 could bring some turbulence.

Sipahimalani noted that even with a sharp rise in U.S. Treasury yields, AI remains one of the key forces supporting U.S. stocks near record highs, citing strong earnings from major AI-related companies. However, the strength at the index level masks weakness beneath the surface: about half of the components in the Russell 3000 index have fallen at least 20% from their June 2026 highs, highlighting how much of the market's resilience depends on a small group of winners.

He said a reversal of the AI trade could be triggered by several factors, including safety concerns that lead to tighter regulation, or signs that customer investments in the technology are not generating sufficient returns.

Despite these risks, Temasek remains bullish on AI over the long term and continues to increase its exposure. Currently, about half of Temasek's AI exposure is in publicly traded assets, and the firm would ideally raise that share to around 70% to 75%. Compared with private assets that are harder to exit quickly, public market allocations would give Temasek greater flexibility to adjust as the industry evolves. Sipahimalani said AI is a fast-changing environment where conditions can shift easily, and investors must be able to pivot. Temasek has invested in private AI model developers such as OpenAI and Anthropic, though the size of its exposure in these areas differs from other areas where it has more flexibility.