If artificial intelligence technology fails to meet the high expectations priced in by the market, it could result in a sudden loss of value
[SINGAPORE] With artificial intelligence (AI) emerging as one of the biggest structural themes in global markets, concerns are rising about the potential for bubbles, where inflated valuations could collapse and lead to a sudden loss of value.
Against this context, the Republic’s sovereign wealth fund GIC is applying a framework to guide its investments across the AI value chain in public equities as well as private markets, said its group chief investment officer Bryan Yeo.
“This AI theme is one that we are very much focused on… We think about it in terms of enablers, monetisers and adopters,” he said on the third and final day of the Milken Institute’s Asia Summit on Friday (Oct 3).
Speaking on a panel about the global investment outlook, he noted that much of GIC’s focus so far has been on the enabler space.
The fund’s investments have centred on semiconductors, AI data centres and hyperscalers, which are areas “where value has been growing as a result of the demand”.
Looking ahead, GIC expects value to shift towards monetisers, which are AI-native startups whose core focus is developing products and services powered by AI.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Over time, this value will then move to adopters, which are typically incumbents or listed companies that adopt AI capabilities to re-engineer their operations.
“That is where we are also concerned, because our expectation is that in the next three to five years, there is going to be a high velocity of value creation, but also value erosion or destruction for those who fail to evolve,” said Yeo.
However, he said that there is a growing AI bubble risk in the early-stage venture space, where any startup with the AI label is being valued at extremely high multiples, often out of proportion to its small revenues. While this may be justified for some companies, it is likely not for others.
SEE ALSO
This is an area where caution is necessary, with GIC “making sure (it is) digging deep to figure out who the real winners might be eventually”, he said.
He also pointed to the broader macroeconomic environment, noting that with anticipated rate cuts and fiscal stimulus, valuations could continue to rise.
“If the technology doesn’t catch up and doesn’t deliver as per the high expectations that the market is pricing in, then we are in for a bubble,” he added.
Fellow panellist Sandra Cheng, chief executive officer and head of distribution for the Asia-Pacific at Aviva Investors, agreed with Yeo, noting that her firm has been researching whether a bubble or left-tailed risk could catch them by surprise.
“Based on our research, when we look at the growth of AI and the capital expenditure that is being put into the hyperscalers and that whole drive for AI innovation, we are still somewhat comfortable,” she said.
This is because of the significant growth of AI companies and that the technology’s potential to drive productivity spans multiple sectors.
“We do expect a broadening of the equity market and AI thematics,” Cheng said, adding that this growth extends into areas such as electrical equipment, software and tech support. She emphasised that the focus is not just on AI companies alone, but also on the broader supply chain.
Tony Minella, chief executive officer of Eldridge Capital Management, believes that there can both “be a bubble and a hell of a lot of opportunity out there” in the AI space.
He cited examples such as OpenAI’s high valuation, noting the uncertainty of such valuations, but also recognising the daily value that AI provides.
“We are in for a massive boom in productivity, and how that ripples through the world economy, what it means for inequality (and) how it benefits capital relative to labour, are all tough questions we are going to wrestle with over the course of the next decade,” he said.
Acknowledging this uncertainty surrounding AI’s future, Todd Sisitsky, president of private equity firm TPG, said the technology “changes every few months in terms of outlook and limits”. He added that there are compelling arguments on both sides of the debate over whether a bubble exists.
On the one hand, some companies are scaling up their revenues from zero to US$100 million in just months, a pace far quicker than traditional growth.
On the other hand, early-stage venture companies are being valued at staggering figures, with valuations ranging from US$400 million to US$2 billion an employee, a development he described as “a breathtaking moment”.
