AI trade enters a new phase: Why DBS favours AI adopters over capex-heavy players

The artificial intelligence investment theme is entering a new phase as investors become increasingly selective about where AI spending is translating into productivity gains, stronger margins and durable revenue growth, according to Yeang Cheng Ling, Chief Investment Officer, DBS.

The AI capex cycle continues to underpin economic momentum and corporate earnings, but the investment landscape is becoming more discriminating, with investors scrutinising funding needs, free cash flow and valuations, DBS said in its 4Q26 CIO Insights, Resilience Rewarded.

“The equity rally is broadening meaningfully,” said Yeang Cheng Ling, Chief Investment Officer (North Asia) at DBS, as energy, healthcare and financials gain momentum while technology consolidates.


DBS said the broadening of the equity rally “does not signal the end of the AI theme” but instead marks the “next phase of value creation” as investors look beyond infrastructure builders towards companies capable of converting AI adoption into higher productivity, stronger margins and durable revenue growth.

DBS remains constructive on long-term AI beneficiaries but favours “lower-capex adopters” alongside sectors benefiting from stronger capital-markets activity, energy security and operational efficiency.

From AI infrastructure to AI adoption

The shift comes as investors become more critical of the capital requirements associated with the AI investment cycle. DBS said investors are scrutinising hyperscaler capital expenditure, debt issuance and declining free cash flow.

Against this backdrop, the bank advocates a “barbell approach” to the AI theme, retaining exposure to infrastructure enablers while adding AI adopters that can monetise productivity gains without owning capital-intensive data centres or generation assets.

“The AI capex cycle continues to drive US macro and earnings resilience, but investor positioning is broadening beyond technology,” DBS said.

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Equity leadership broadens

The changing dynamics around AI are unfolding alongside a broader rotation across equity markets.

Energy, healthcare and financials have gained momentum, while technology has consolidated, supported by stronger earnings breadth and the diffusion of AI benefits across the economy.

DBS maintains a “conviction view” on financials, citing easing regulation and stronger capital-markets activity as key drivers. It further expects equity markets to continue to grind higher as robust earnings offset pressure from higher bond yields. However, persistent inflation, rising sovereign issuance and an increasingly hawkish central-bank backdrop are expected to keep long-term yields elevated and limit valuation expansion.

DBS therefore sees the next phase of the AI trade as less about simply identifying companies benefiting from the surge in AI infrastructure spending and more about identifying businesses capable of translating AI adoption into tangible productivity, margin and revenue gains.

The bank remains overweight US equities on a 12-month basis and constructive on Asia ex-Japan, where sustained AI investment, improving earnings and corporate-governance reforms underpin its outlook.

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