GIC boss says investors should favor Big Tech over AI startups

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Singapore’s GIC, one of the world’s largest institutional investors, has advised it should “double down” on its exposure to Big Tech rather than overvalued start-ups in the booming generative artificial intelligence sector.

Lim Chow Kiat, chief executive of the $700 billion sovereign wealth fund, said tech giants such as Microsoft, Alphabet and Meta had started to extract “a lot of value” from transformative technology with their existing customers.

“Customers pay for it [their services] already. So that’s actually a pretty good place for investors to refocus on,” he said in an interview with the Financial Times. Valuations of startups with AI business models are “too high,” he added. “We have to be careful not to get caught up in the hype. But it’s more important not to lose interest.”

Generative AI companies whose technology can create customized images and human-like text in seconds have raised billions of dollars this year. Big tech companies have predicted that AI will boost their revenues, with Microsoft taking an early lead in integrating the technology into its products, helped by its large stake in ChatGPT developer OpenAI.

GIC, which manages Singapore’s foreign exchange reserves, does not detail its investments and breaks down its portfolio by region rather than by sector. Its investments in the US rose to 38 percent of its portfolio in the 12 months to March this year, up from 37 percent a year ago, compared with a decline in Asia (excluding Japan) from 25 percent to 23 percent.

But it was one of the first institutional and government investors to turn to technology to keep the small financial hub abreast of the latest innovations.

Of the $52 billion GIC invests in publicly traded companies, $17.4 billion is in the tech hardware and semiconductor sectors, according to Bloomberg data. The largest current holdings in publicly traded technology companies are Taiwan Semiconductor Manufacturing Company ($11.1 billion), DoorDash ($2.1 billion), Sony ($1.56 billion) and MediaTek ($1.25 billion U.S. dollar).

Companies in its AI portfolio include British analytics firm Quantexa; Hong Kong data company MioTech; US AI software and hardware provider SambaNova Systems; and US-Israeli fintech Pagaya Technologies.

Both GIC and Singapore’s other state-owned investor Temasek have described the potential of AI as transformative for businesses.

But the excitement since the launch of the ChatGPT chatbot a year ago has led experts to warn that most startups in the industry are overvalued and won’t make money. AI has similarly increased the market cap of major tech companies, whose collective valuations have increased by trillions since last year.

Venture capital firms and larger investors, including sovereign wealth funds, have watched from the sidelines as Big Tech has forged closer ties with the leading generative AI startups. This year, Microsoft has invested billions of dollars more in OpenAI and supported its competitor Inflection. Alphabet and Amazon have committed up to $6 billion to Anthropic.

The companies have become preferred partners because only they can provide the combination of computing power and capital needed to build baseline models. In return, they have received preferential access to AI tools and are expected to recoup much of their investment through what AI startups spend on their cloud services.

Infrastructure is another important area for investors, including GIC. “We believe there will be an infrastructure layer for AI, just as there was for the transition to the cloud,” the boss said.

Amazon, Microsoft and Google parent Alphabet have increased their investments in cloud computing infrastructure in recent years. Analysts at Bank of America expect the three companies’ combined cloud-related investments to grow at an accelerated rate of 22 percent to $116 billion next year.

Singapore has so far taken a more collaborative approach to AI rather than trying to regulate it. In an annual letter in July about GIC’s performance, Lim warned that there were legitimate concerns that generative AI was being developed too quickly. He referred to deepfakes, fake news and cyberattacks.

“Different investors have different options for reducing the amount [AI] Value chain, but . . . however we cut [it]“We have to remember that it’s a long game,” he said.

Additional reporting by George Hammond in San Francisco and Mary McDougall in London