Xtrackers by DWS is sponsoring the report ‘Exuberance and exposure: Institutional investors and the AI boom’ by Economist Impact. Institutional investors are no longer bystanders in the artificial intelligence boom; they are helping to drive it. Their vast pools of capital make them natural financiers of AI’s most expensive assets, from hyper-scale data centres to training systems.

But these investments carry distinct risks: high upfront costs, rapid obsolescence and growing geopolitical strain across supply chains. Those risks raise a broader question. How durable is the current AI investment cycle? AI’s boom resembles past waves of industrial investment: vast, transformative, but prone to overreach. The report examines how institutional investors are navigating that tension. Drawing on a global survey of 300 institutional investors, it explores what is driving allocations, how investors would respond to a sharp correction and how portfolios are positioned to capture AI’s longer term gains.

The whole report can be found here. Please find the key findings of the research below:

The AI investment boom is fragile, driven in part by market momentum rather than economic fundamentals.
More than 70% of respondents identify at least one momentum driven factor—such as recent stockmarket performance or highly concentrated returns among a handful of dominant firms—as a key driver of investment. In other words, rising prices are helping to justify further investment. Yet the longer-term case is more grounded: about half cite long-term productivity gains as the main motivation, while only 14% expect short-to-medium-term cost savings. The boom rests on a mix of conviction and momentum— an unstable combination.

Institutional investors and the AI boom 6 Investors expect a sharp correction in AI equities—but may not be able to absorb losses of that scale.
Nearly 80% expect AI equities to fall by at least 20% in the next 12 18 months, yet fewer than 1% say they could withstand a drawdown of that magnitude. Despite this, more than 80% express confidence in their portfolios, though many qualify this as only “somewhat confident”. This mismatch suggests resilience may be overstated.

Portfolios are already heavily exposed to AI—mostly through equities—creating meaningful concentration risk.
Around two-thirds of respondents say that 25-50% of their equity portfolios include AI-related companies, higher than for fixed income or alternative investments. Equity exposure runs across the ecosystem, from infrastructure providers to developers to adopters. Holdings are most concentrated in infrastructure and passive funds, suggesting a preference for indirect bets. Even so, roughly one-third of investors report that AI-linked equities are overweight relative to their strategic allocations, leaving portfolios exposed to AI valuation swings. Heavy equity exposure raises the risk of false diversification: if valuations fall together, diversification may offer less protection than expected.

Institutional investors are preparing for volatility, but many plan to buy rather than retreat if valuations fall.
Governance measures—such as stricter investment committee oversight and pre-defined rebalancing triggers—are the most widely adopted strategies. Few plan to reduce exposure. Instead, most expect to increase allocations if valuations fall. Investors are positioning themselves as opportunistic buyers in a downturn, not defensive sellers.

Investors expect AI to generate returns across many sectors, although technology and finance remain the primary beneficiaries.
Technology is widely seen as the sector most likely to deliver the largest AI-driven investment gains. The financial services sector also ranks highly, as investors anticipate efficiency gains and new AI-enabled f inancial products. Some regional investors, particularly in Asia-Pacific, expect stronger gains in sectors such as media and logistics. Even so, expectations remain anchored in sectors already closely tied to the technology.

Investors are betting heavily on the US to win the race for AI supremacy.
More than 40% of respondents expect the largest returns to come from the US over the next five years, far ahead of any other market. China trails significantly at 13%, suggesting investors may be underestimating its role. Overall, expectations are skewed towards developed markets: 27% expect the highest returns there, compared with just 13% for emerging markets.

Institutional investors are becoming central to the AI ecosystem—as both financiers and users of the technology. Their exposure has grown quickly, especially through equities, even as they recognise that valuations may be fragile. Rather than retreat, they are preparing for volatility: tightening governance, maintaining diversification and positioning themselves to seize opportunities in a downturn. Yet this confidence rests on the assumption that any correction will be contained. In reality, concentrated equity exposure and tightly integrated markets leave portfolios vulnerable to a broader repricing. As long-term stewards of capital, institutional investors will shape not only their own returns, but also market stability—and the pace of future AI investment itself.

About DWS Group

DWS Group (DWS), with EUR 1,093bn of total assets under management (as of 31 March 2026), is a leading European asset manager with global reach. With approximately 5,000 employees in offices around the world, DWS offers individuals, institutions and large corporations access to comprehensive investment solutions and bespoke portfolios across the full spectrum of investment disciplines. Its diverse expertise in Active, Passive and Alternative asset management enables DWS to deliver targeted solutions for clients across all major liquid and illiquid asset classes.

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