A person visits the World Artificial Intelligence Conference in Shanghai, China July 26, 2025. REUTERS/Go Nakamura
SYDNEY, Dec 9 (Reuters) - The chief investment officer of Australian pension fund Aware Super says there are flashing "orange" lights in some funding arrangements in the global artificial intelligence industry but earnings growth is backing up the sector's current valuations.
Simon Warner, who became CIO of the A$210 billion ($135.75 billion) fund last week, said the future trajectory of the AI industry's economic model was the most prominent financial market risk in 2026.
Soaring AI stock valuations have started to weigh on global markets as investors question when huge capital investments will translate into profits.
"We've taken great comfort in most of the last few years that the capital investment into both large language models, but also into the data centers and all the infrastructure to support AI, has been from very stable sources of funding, largely from retained earnings," Warner told Reuters in an interview.
"There's been some instances in the last six months or so where that's softened a bit, there's more circular financing, a bit more conduit financing. Nothing that flashes red, but things that certainly flash orange."
Warner said there was an interdependence between capital expenditure valuations in the so called "Magnificent Seven" stocks and broader wealth effects and domestic demand in the U.S.
"I do think there is a dynamic there, but if one of those pillars was to stumble, then we could have a correction," he said.
"That is something we are watching very closely."
Meta said in late October it had struck a $27 billion financing deal with Blue Owl Capital to fund its biggest data center project globally, as large technology companies race to build out the infrastructure needed to power their artificial intelligence ambitions.
Microsoft was Aware's second-largest listed stock investment in its balanced fund at the end of June, according to filings. It also owns Nvidia, Apple, Alphabet and Meta among others.
Warner said while some investors remained wary of AI and tech-related stocks valuations, there were risks to those valuations if capital expenditure levels started to decline.
($1 = 1.5101 Australian dollars)
(Reporting by Scott Murdoch; Editing by Sonali Desai)
