One-third of Singapore-listed firms at risk in severe AI downturn: MAS

The Monetary Authority of Singapore (MAS) has warned that approximately one-third of Singapore-listed companies could face significant risk under a severe downturn in AI-related investments and revenue losses within the AI supply chain. This finding emerged from a stress test conducted by MAS, which projected potential revenue shocks of up to 30 percent and interest-rate shocks of up to 400 basis points for firms with exposure to the AI sector.

Companies deemed at-risk were defined as those with an interest coverage ratio below one or negative cash flow with insufficient cash reserves to cover more than six months of shortfall. While most firms were able to withstand the shock, MAS highlighted that reassessment of AI-related asset valuations poses a key risk. This could lead to a reduction in related investments, negatively impacting revenues and earnings of exposed firms.

The stress test also revealed that highly leveraged, capital-intensive firms, as well as those reliant on working capital financing, were disproportionately affected. Smaller companies were particularly vulnerable due to lower profit margins and thinner cash buffers. Despite these challenges, MAS noted that the overall corporate balance sheets remain generally sound.

The central bank attributed global financial resilience threats to persistently higher capital costs, fiscal risks, and supply shocks, as well as persistently higher global sovereign yields. The rapid expansion of AI infrastructure is expected to continue supporting economic activity and corporate earnings, but current equity valuations necessitate sustained strong revenue growth and substantial profitability for investments in data centers and advanced semiconductors.

MAS expects higher global real interest rates to affect Asian economies differently, with some benefiting from AI-related investment and exports being more resilient to higher borrowing costs while being more susceptible to AI cycle pullbacks. Singapore's financial conditions have been generally supportive, characterized by easing borrowing costs, tighter credit spreads, and growing bank credit.