Energy is the chokepoint for AI’s next growth phase, says DBS CIO

[SINGAPORE] Energy has become a critical constraint on AI’s next phase of growth, prompting DBS to recommend investors add energy infrastructure alongside technology as a key investment theme.

“Energy is the chokepoint for the full deployment of AI, there is just insufficient electricity to power AI,” DBS chief investment officer (CIO) Hou Wey Fook said at the bank’s Chief Investment Office media briefing on Tuesday (Jun 30).

Citing Nvidia chief executive Jensen Huang, Hou said that the next era of computing will require “1,000 times more power” than what is currently available, making power supply the ultimate bottleneck in the AI space.

DBS expects the return of energy security as a key priority, together with about US$1 trillion of annual AI-related capital expenditure over the next few years, to drive sustained demand for power and electricity.

Investment opportunities span renewables and traditional hydrocarbons, as well as energy infrastructure across storage, grid networks, and nuclear power, said the bank.

“Layered” approach to energy investing

Goh Jun Yong, investment strategist at DBS, recommended a “layered” approach to energy investing, by starting with oil majors before expanding into other companies in the supply chain.

“You can enter into oil majors for near-term stability, but you can move on to other companies that are involved in power generation, transmission, and then you can add a last layer in, (through) alternative energy and energy infrastructure manufacturers,” said Goh.

He added that uranium exposure could be part of alternative energy, and that large global energy infrastructure manufacturers will benefit from the build-out moving forward.

Joanne Goh, senior investment strategist at DBS, noted that for the oil servicing sector, the majors which are listed in the US and Europe are preferred as they are better integrated.

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Energy is the chokepoint for AI’s next growth phase, says DBS CIO

Within Singapore, she highlighted opportunities in utilities and companies exposed to clean energy, renewables, Reits and power infrastructure.

“Singapore companies have not really benefited (across the value chain yet) but we think valuations are worth a look right now when orders come back,” she added.

Indonesia rebound expected

Despite recent market turbulence, DBS remains constructive on Indonesia, arguing that investor sentiment could recover once several near-term uncertainties ease.

The Jakarta Composite Index (JCI) has fallen more than 30 per cent in the first half of 2026, while investor uncertainty has lingered after MSCI delayed its decision on Indonesia’s market classification until November, leaving the country at risk of being downgraded from emerging-market to frontier-market status.

Still, Radika Rao, senior economist – eurozone, India, Indonesia at DBS, said that reforms introduced in the last three to four months, including raising the free-float requirement and increasing market transparency, have been viewed positively by the index provider.

Meanwhile, Joanne Goh said she expects a lift in sentiment once three issues have been resolved: the MSCI classification review, oil prices and the inflation outlook.

The bank favours Indonesian banks, telecommunications and utilities, while also seeing opportunities in commodities given their role as inputs for power generation.

“We think that sentiment would be lifted, and with the very cheap valuations, foreign trust can actually come back to Indonesia,” she said. “We have a JCI target of 8,000 versus the current levels of 6,000, which is quite sizeable.”

Technology still attractive

DBS said that its confidence in the AI sector’s fundamentals, first outlined at its briefing in the start of the year, has held up through the first half of 2026, despite persistent Middle East tensions and rising bond yields.

US earnings growth surged 26 per cent in the latest quarter, led by AI-related companies, resulting in a 13 per cent decline in the market’s price-to-earnings ratio to 22 times, according to the bank.

Hou acknowledged that investors have become increasingly concerned about AI valuations, with hyperscale technology companies still announcing large capital expenditure plans.

Despite this, AI has still contributed a disproportionate around 80 per cent of total equity returns, he pointed out. In Asia, Taiwan and South Korea have outperformed on the back of semiconductor demand.

“The recent performance across the North Asia market was mainly driven by one major trend – the demand for semiconductor chips,” said Yeang Cheng Ling, chief investment officer (North Asia).

“We believe this trend will continue because AI will need a lot more microprocessors and chipset.. and going forward, with energy as another chokepoint, power-efficient chipsets will be another direction,” Yeang said, adding that this will be a major investment theme across Asia Pacific.

“This whole trend will form a strong investment theme across Asia Pacific.”

Hou said that the bank’s overall message to investors on staying invested and staying diversified have remained unchanged.

“Stay structurally bullish on technology and add energy infrastructure as enablers to the AI economy and on returns for energy security,” he said.