Some of Asia's biggest fund managers are taking a more selective approach to artificial intelligence, shifting their focus toward the physical infrastructure that powers the technology rather than betting broadly on AI winners. The shift was on display at the Reuters NEXT Asia conference in Singapore, where executives from Temasek and Goldman Sachs Asset Management discussed the opportunities and risks in the AI space.
Picks-and-Shovels Approach Gains Favor
Investors are increasingly talking about a "picks-and-shovels" strategy in AI. The term refers to investing in the foundational infrastructure that enables the AI boom, rather than betting on individual AI applications or companies that may or may not succeed. In the current AI cycle, that means data centers, semiconductor manufacturing equipment, networking hardware, and energy infrastructure.
Temasek, Singapore's state-owned investment firm with a portfolio worth over S$380 billion, said it wants to increase its AI-related exposure to as much as 15% over the next five years, up from about 6% today. But the firm is being deliberate about where it places those bets. Temasek highlighted that it has tilted toward "hard assets" — physical infrastructure like data centers — rather than pure-play AI software companies.
Goldman Sachs Asset Management echoed a similar sentiment at the conference, pointing to the need for selectivity as the AI landscape becomes more crowded and valuations stretch.
Frothy Valuations and Disruption Risks
While the AI rally has delivered huge gains for some stocks, the conference speakers warned that not all AI investments will pay off. Temasek flagged a second-order risk that is often overlooked: AI can disrupt the very companies it is invested in. A company that looks like a safe bet today could see its business model upended by a new AI-powered competitor tomorrow.
This is not a hypothetical concern. In recent months, markets have seen sharp sell-offs in some tech stocks as investors reassess who the real winners and losers will be in the AI era. The broader Asia markets have been split, with some indexes like South Korea's KOSPI entering a bear market as tech giants slide, while others like Singapore's STI have hit records on bank gains.
Frothy valuations are another red flag. After a year of explosive gains in AI-related stocks, some companies are trading at levels that imply near-perfect execution for years to come. Any sign of slowing growth or rising competition could trigger sharp corrections.
What It Means for Everyday Investors
For ordinary investors, the message from these institutional giants is clear: the easy money in AI may be behind us. The initial wave of enthusiasm that lifted almost every stock with an AI connection is giving way to a more discerning phase where fundamentals matter more.
Investors should be aware that AI is not a single industry but a broad theme that touches many sectors. The "picks-and-shovels" approach — focusing on companies that provide the hardware, energy, and infrastructure for AI — may offer more predictable returns than betting on individual AI software firms whose revenues and profits are still uncertain.
At the same time, the disruption risk that Temasek highlighted is real. AI is likely to reshape entire industries, and some established companies may struggle to adapt. Diversification across sectors and geographies remains a prudent strategy.
The conference also comes against a backdrop of broader market uncertainty. Singapore stocks have been flat as AI rally doubts and the looming Fed minutes weigh on sentiment. Meanwhile, South Korea's KOSPI has entered a bear market, dragged down by tech giants that had previously benefited from the AI narrative.
Looking Ahead
The comments from Temasek and Goldman Sachs Asset Management suggest that institutional investors are entering a more cautious phase on AI. They are still allocating capital to the theme, but with greater scrutiny on valuation and competitive dynamics.
For retail investors, the key takeaway is to avoid chasing hype. The AI revolution is real, but not every company will be a winner. Focusing on infrastructure and companies with strong competitive advantages — and being mindful of valuation — may be a more sustainable approach than trying to pick the next AI breakout stock.
As the AI landscape evolves, investors should also keep an eye on regulatory developments, energy costs, and geopolitical tensions that could impact the supply chain for AI hardware. The next phase of the AI story will likely be more nuanced than the first.
