MAS warns that medium-term path for AI spending remains uncertain
The Monetary Authority of Singapore (MAS) has cautioned that a sudden pullback in artificial intelligence investment could trigger a deterioration in global financial conditions, with consequences for economies heavily exposed to technology sectors.
MAS Managing Director Chia Der Jiun warned the sustainability of AI investment had become a defining risk for the global economy.
"One major uncertainty to the benign picture thus far is the sustainability of the AI investment boom," Chia said at a media conference this week.
"Global growth, investment, and financial market performance have become highly dependent on projections of large and increasing investment in data centres and semiconductor chips continuing well into the future."
A boom built on borrowed momentum
MAS noted that AI-connected firms now account for around 40% of S&P 500 market capitalisation and more than 30% of the MSCI EM Asia Index, dominating new financing raised in US capital markets, representing around half of investment-grade bond issuance, 38% of high-yield issuance, and 87% of new venture capital funding.
In Asia, AI-driven electronics exports account for more than 70% of the region's export growth year-to-date, up from 46% in 2024.
While near-term investments are supported by committed orders and strong cashflows, Chia flagged growing uncertainty in the medium term.
"In the race for model advantage and to scale adoption, projected investments by hyperscalers and model builders have expanded beyond cashflows and commercial revenues," he said. "Large equity and debt financing will be needed in the years ahead."
He identified several risks to AI investment monetisation, including escalating costs of energy and chips, supply bottlenecks, regulatory uncertainty, and intense competition among model providers, including from lower-cost open-weight models.
"If the payoff of AI investments falls short of expectations over the medium term, hyperscalers will moderate the pace of investment and markets will reassess asset valuations," Chia warned.
MAS noted that the implications are significant whichever direction the AI boom goes. Should investment prove sustained and productivity gains broaden, "stronger and broader spillovers to income, demand and inflation could ensue," Chia said, complicating central banks' assessments of potential output and neutral interest rates.
On the downside, the stakes are equally high.
"If… there is a major retrenchment in AI investment, it could sharply weaken global growth through a fall in business investment and semiconductor demand and negative wealth effects," Chia said. "A sharp tightening of global financial conditions could result."
MAS said it has updated its stress tests to capture key downside risks, including a sharp tightening in financial conditions.
While the results affirm that the domestic financial system remains broadly resilient, the regulator flagged small pockets of vulnerability among highly leveraged households and corporates, and said firms in more exposed sectors should provision for additional liquidity and diversify revenue sources.
