How can you position your portfolios for unforeseen risks?

As global economic and technological competition intensifies, underappreciated and interconnected risks could upend the investment outlook. The fast pace of change in technology, energy, trade flows, and the broader economy calls for investors to rethink their forecasts and look beyond prevailing narratives, anticipating unexpected outcomes. Investors can be better equipped to stay ahead of unforeseen shifts in market regimes by evaluating potential scenarios, risk exposure, and strategies for capturing alpha while effectively managing risk.

PGIM gathered a panel of experts to discuss interconnected risks related to the AI spending splurge, the rapid buildout of energy infrastructure, and deflationary pressure from China’s industrial overcapacity. The following is a summary of the conversation.

• Interconnected risks: AI has become a critical element of national power and geoeconomic competition. The global race to secure AI inputs, including rare earths and chips, has fueled competition between the U.S. and China in particular. While the U.S. has an advantage in chip design, electricity constraints remain a challenge for policymakers and the industry. Data centers have the option of supplying their own power, but this approach brings its own set of risks (e.g. lack of backup power, and costs associated with building and maintaining power off the grid). The U.S. government could seek out partnerships with energy-rich countries to build and power new data centers abroad—if these projects can protect semiconductor technology to address national security risks. However, with data centers labeled as national critical infrastructure, countries have been largely focused on building domestic digital infrastructure to secure data flows.
• AI infrastructure spending: Demand for data centers has far exceeded available capacity. This has caused rental rates to climb in most markets. Given these supply-demand dynamics, it is unlikely that existing data centers would be affected by a sudden drop in valuations for tech companies or consolidation among AI developers, although the development of new data centers could slow. While both winners and losers will emerge from the AI boom, focusing on low-latency data centers, rather than machine-learning infrastructure far from city centers, could prove to be more resilient for portfolios. Low-latency markets will serve growing demand from AI inference applications, traditional cloud computing, and emerging technologies like self-driving cars.
• Power capacity and demand growth: With an increase in power consumption forecasts driving an infrastructure buildout, investors should consider multiple layers of risk, including supply-chain bottlenecks. The timeline to take delivery of equipment is years long, particularly for gas-fired power plants that face long waits for new turbines. Tariff-related costs are also a factor, and equipment contracts could include a cap on what suppliers will absorb. Renewables face their own supply-chain challenges, while the expiration of government subsidies creates uncertainty for future buildout plans. Utilities can pass costs to their pool of customers but face uncertain regulatory timeframes when considering rate increases.
• China’s factories and global trade: China has embarked on an anti-involution campaign, which seeks to curb excessive competition that squeezes margins. Deflation in producer prices has eased in the second half of 2025. However, over the longer term, anti-involution practices could also lead to higher unemployment, while Chinese exports have helped the economy offset weakness in its property sector. China’s industrial overcapacity has raised the prospect of disinflation in other economies, particularly emerging markets. With domestic consumption lagging, Chinese companies look outward to find markets that can absorb excess output in a wide range of goods, including EVs, batteries and solar panels. An influx of Chinese goods creates risks for non-tariff economies by dragging on prices and putting domestic companies at a disadvantage.