Asia, 22 October 2025 — Fund managers are increasingly tilting into equities even as many warn that the booming AI-tech sector is entering bubble territory, according to recent industry feedback.
A paradox of bullishness and caution
In recent surveys and market commentary, investment professionals cited the rapid rise of artificial-intelligence (AI) companies and technology stocks as the top risk for their portfolios, yet many are continuing to commit capital into the same sectors. Analysts interpret this as a reflection of the tough trade-off between fear of missing out (FOMO) and fear of being left behind.
For example, a report summarising commentary from fund managers captures the contradiction:
“Fund managers now identify the AI bubble as their portfolio’s biggest risk … yet they can’t seem to stop buying the very stocks they are warning about.”
These views align with broader concerns flagged by veteran investors and analysts, who caution that valuations across key technology and AI-linked names may be stretched, and the risk of a sharp correction is real.
Why are managers still investing?
Several factors explain why fund managers continue to increase exposure to equities, including AI-related names, despite the warning signs:
- Many firms believe that missing the next leg of a transformative theme like AI could be worse than being early. One investor noted: “We know the valuations are stretched, but we also know being early is the same as being wrong in this business.”
- With central banks gradually shifting to easier policy settings and inflation showing signs of moderation in some markets, equity risk-premia have become more attractive, prompting managers to lean into growth.
- The momentum in large-cap technology stocks remains strong, supported by robust earnings for some players and continued corporate spending on AI infrastructure.
- Many portfolios are benchmark-driven, so managers feel pressured to remain invested in the sectors dominating indices, even if they privately view valuations with scepticism.
Implications for investors, especially in Asia
For Asian investors and markets, this dynamic carries several important take-aways:
- Valuation sensitivity: Companies in the region with substantial AI or tech exposure may face heightened scrutiny. When markets turn, the drawdown could be swift if earnings disappoint or hype fades.
- Sector rotation potential: If AI-tech falters, investors may shift towards more cyclical or value-oriented names in Asia (manufacturing, commodities, infrastructure), offering opportunity for active allocation.
- Governance and business‐model discipline: Given the concerns around hype, firms whose business fundamentals are clear, cash flows visible and governance strong may outperform those riding thematic waves alone.
- Opportunity to engage early: While risks are elevated, the depth of AI investment across Asia means that players in infrastructure, semiconductors, data centres and services could still benefit, albeit with tighter risk management.
What to watch next
- Earnings outcomes for major AI and tech companies: A miss in revenue or slowdown in spending could trigger a re-rating cycle.
- Portfolio flows: Are fund managers really trimming exposure or just rhetorically noting risk? Data on regional fund flows, especially into Asian growth, will be instructive.
- Macro backdrop: If inflation stays sticky or policy becomes more hawkish, markets may rotate out of high-growth names into more defensive or yield-focused assets.
- Regional divergence: Asia-Pacific markets may diverge meaningfully, economies with strong tech/export links (Taiwan, Korea) versus domestic-consumption/industrial names (ASEAN) may decouple.
