A new capex supercycle is upon the world, believes the chief investment office (CIO) of DBS in a 2H2026 market outlook on June 30.
Powered by artificial intelligence and energy, this period will see hyperscalers expand their spending “aggressively” as compute demand outpaces supply, new strategic infrastructure investment due to sovereign AI initiatives and renewed investment across the energy value chain amid rising energy security concerns after years of underfunding.
Based on analysis of market conditions and prospects, DBS favours “pick‑and‑shovel” businesses positioned along value chains to capture surging capex intensity, particularly semiconductor ecosystems, networking and specialised hardware, oil services and equipment providers.
The “pick and shovel” strategy is an investment approach where one buys the foundational tools, infrastructure, or services an industry needs, rather than investing directly in the final product.
“We remain all-in on AI-related exposure, while recognising the market has become increasingly concentrated, with the top 10 AI stocks generating c.78% of index gains,” states DBS chief investment officer Hou Wey Fook in DBS’s CIO Insights 3Q26 publication.
On identifying where potential AI investment opportunities lie, Hou posits that AI deployment can be divided into five stacks — energy, chips, infrastructure, models, and applications. “For example, the chips and infrastructure layers involve data centres to enable AI training and inference at scale,” he explains at a media briefing. He adds that hyperscalers are investing hundreds of billions of dollars into data centres and semiconductor companies are the biggest beneficiaries now.
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On energy, Hou says that the energy layer is the “chokepoint” for the full deployment of AI. “There is just insufficient electricity to power AI, and there is also an acute need to upgrade aging grid systems and infrastructure,” notes Hou, who cites Nvidia CEO Jensen Huang’s prediction that the next era of computing will require 1,000 times more power than what is currently available.
As such, Hou advises investors to add the energy infrastructure theme which is trading in the low-teens. “The return of energy security, plus sustained AI-related capex of some US$1 trillion per annum over the next few years, will drive demand for power and electricity,” he shares. “Investment opportunities span renewables and traditional hydrocarbons, as well as energy infrastructure across storage, grid networks, and nuclear power.”
Responding to The Edge Singapore on where to deploy capital into energy investments, DBS investment analyst Goh Jun Yong suggests the oil majors for near-term cash flow stability as well as companies involved in power generation and transmission. Alternative energy could be added as a final layer including energy infrastructure manufacturers and nuclear and uranium-related companies.
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For the Singapore market, there seems to be a paucity of options for energy plays according to DBS senior investment strategist Joanne Goh. “So, from the value chain, I think the Singapore companies haven’t really benefited from it,” she says in response to The Edge Singapore.
Nonetheless, Goh adds that she sees a bright spark for the Singapore market. “We also like the utility sector, because the utility sector is also all about energy, and the energy is not all about [fossil] fuel, but it's about clean energy, renewable energy, grids and power.”
Accounting for inflation
While higher energy prices due to the Middle East conflict and AI investment boom contribute to short-term inflationary pressures, Hou expects inflation to remain sticky, as the world moves from an “era of abundance to an era of scarcity”.
“Now, the new era will be characterised by protectionism, where countries will be prioritising supply chain resilience, national security, and domestic manufacturing agendas, this will lead to higher commodity prices, high inflation, and high interest rates,” he says. “At the same time, governments are pursuing expansionary fiscal policies, resulting in widening deficit burdens, and all these are happening on the back of growing geopolitical uncertainties now.”
These developments point to a more inflation‑prone macro regime than markets currently price according to DBS. With new US Federal Reserve chairman Kevin Warsh preferring a “trim mean” personal consumption expenditure (PCE) inflation rate over the core PCE rate, Hou does not see swift rate hikes in the foreseeable future and expects inflation will likely be higher than the Fed’s stated 2% target for longer.
“Today the trim mean rate is about 1% below the core rate,” says Hou. “We therefore expect a slower response to inflation data uptakes as compared to the past Fed chair.”
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‘Don’t just buy five REITS’
On income-related investment, DBS seem to like Singapore banks and REITS, with both generating yields averaging 5% or 3-4 hundred basis points over Singapore government bonds, says Hou.
“Singapore office and commercial rentals are well supported by high occupancy in the midst of Singapore's land scarcity,” says Hou. “Singapore REITs also demonstrate strong capital conditions, while Singapore banks enjoy high profitability.”
To harness these yields, Hou believes it is important to diversify, saying, “Don't just buy five REITs."
The way he sees it, investors should hold at least 15 to 20 high-quality REITs spread across the various segments of the industry, hospitality, commercial, industrial, retail. "After all, the longer term return on REITs, the bulk of which actually comes from dividends and not capital gains, so you are not paid to take concentration risk in REITs.”
Golden confidence
Unlike bonds and stocks, gold is not a yield-producing asset. However, this has not dampened DBS’s optimism in the precious metal as real yields, defined as the prevailing yield on bonds minus inflation rate, will stay low, if not negative, given the new Fed chair's preferred measurement of inflation, believes Hou.
“Looking at the historical relationship, gold has been highly correlated to the real yield, and this is the reason why we stay constructive on gold, even though the price correction has been consolidating in the past six months,” Hou explains.
He adds that the existence of a structurally supportive supply demand imbalance dynamic is also at work for gold. He sees sustained demand from central banks due to de-dollarisation and monetary debasement risk on the supply side, but expects supply to be constrained as most large shallow high grade deposits have already been unearthed.
“So comparing gold with its limited supply vis-a-vis fiat currencies, that is, without limit, given that the Fed, the ECB [and] Bank of Japan's track record of having little hesitation to conduct quantitative easing or money printing policies whenever their economies encounter slowdown, it is clear to us the price of gold will be higher in the longer term,” reiterates Hou.
On question of which form of gold to invest in, DBS says that physical gold, paper gold and gold ETFs each serve distinct purposes within an investment portfolio, each with its pros and cons.
“Direct ownership of physical gold and physical gold tokens allows investors to hold the asset itself, thereby eliminating counterparty risk,” says DBS group head of investment product and advisory James Tan. “Paper gold, on the other hand, is an instrument which allows clients to take exposure to gold and its price movements, without owning the physical underlying.”
Tan adds that paper gold may be preferred by investors who value logistical convenience and higher liquidity, but warns that they must take on the bank counterparty risk in this case. In addition, with the introduction of physical gold tokens, investors can also own physical gold in fractionalised terms.
Hou also shares his perspective, adding that he favours ETFs from a portfolio construction perspective but physical gold could be an alternative should one has a bleak outlook on the market. “There is a cost to holding physical gold as you would know, there's custody fees and all of that. If you think the world is going to crash, then physical gold makes sense, but be mindful of the cost of holding physical gold.”
