MW How the fragile AI ecosystem may be one of the biggest risks to markets this year
By Jamie Chisholm
A compromised Fed and political tensions are also among the five factors worrying Scott Helfstein at Global X
An image of an electronic wafer is displayed at the Taiwan Semiconductor Manufacturing Company Museum of Innovation. Taiwan's vulnerability to pressure from China is a risk to the AI supply chain.
Barnstorming earnings and forecasts from Taiwan Semiconductor Manufacturing helped spark a revival in artificial intelligence optimism this week.
Maybe just as well. Despite recent evidence that investor appetite for stocks is broadening, many observers still reckon it will be difficult for the S&P 500 SPX to advance meaningfully this year without support from AI-linked Big Tech.
That's a worry for Scott Helfstein, head of investment strategy at Global X. In a note published late Thursday, he listed the five biggest risks facing markets this year.
One is the worry about Federal Reserve credibility and how that may make policy less effective. Another is that upcoming trade negotiations with Canada, Mexico, China, the United States' three largest trading partners, come at a time when global trade tensions remain elevated.
A third concern is the Venezuela aftermath, in terms of energy impacts and the geopolitical stresses caused by the prosecution of a fresh Monroe Doctrine. Fourth is the domestic U.S. environment, where Helfstein stresses about "partisan policy, brinkmanship, shutdowns, and fiscal credibility."
But it's the fifth factor, a hiccup in the AI supply chain, that he suggests could be well underappreciated by markets.
"The AI ecosystem is in a period where small disturbances can have outsized effects on expectations. Enthusiasm around AI adoption has driven markets higher, but recent market volatility indicates that current valuations rely on the assumption that compute capacity scales rapidly and without interruption," says Helfstein.
Nowhere is this sensitivity more apparent than in the semiconductor supply chain. "Semiconductors remain the bedrock of AI progress, yet the manufacturing base for advanced chips is remarkably narrow," he adds.
Taiwan, mostly because of TSMC $(TSM)$, accounts for more than 70% of global foundry revenue and up to 92% of the most advanced chips, Helfstein notes. While supply-chain anxiety focuses on the possibility of an invasion by China, lesser measures, such as sanctions, airspace restrictions or a military exercise blockade by Beijing, could disrupt supply chains or delay equipment servicing, he reckons.
"Taiwan's geography adds another layer of vulnerability, as the Pacific Ring of Fire exposes production to earthquakes, tsunamis and severe weather events," says Helfstein.
Adding to such risk is what Helfstein describes as "the singular role of ASML $(ASML)$ in the semiconductor ecosystem." The Dutch company is the sole supplier of extreme ultraviolet (EUV) lithography systems required for the most advanced semiconductor nodes - "machines that depend on highly specialized optics and subsystems produced by a small group of partners, creating a tightly coupled network with few substitutes."
Beyond semiconductors, there are the constraints on AI infrastructure. Concerns in particular about the energy and water needs of datacenters are heightening regulatory scrutiny and impacting their approval. "Rising utility bills, land-use debates, and concerns about energy-intensive industries could slow interconnection approvals or result in outright moratoriums," says Helfstein.
Furthermore, the build out of AI infrastructure may also be constrained by shortages of materials, such as copper (HG00), whose price this month hit a record high. "Chile, Peru and the Democratic Republic of Congo account for nearly half of global mined supply, leaving the market sensitive to political instability, labor disputes, and climate-driven disruptions," he says.
Rare earths, gallium, and industrial gases, are all essential to chipmaking and lithography, but are geographically concentrated with limited substitutes. "Although efforts are underway to diversify supply, progress is likely to be gradual," Helfstein reckons.
However, while all these AI ecosystem fragilities may hurt the hyperscalers and AI software providers, they highlight how supply deficits can benefit companies like copper miners and the energy sector, notably uranium, according to Helfstein.
In addition, short-term Treasurys BX:TMUBMUSD02Y potentially offer protection against a market slide should disruptions adversely affect corporate investment, he concludes.
The markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as benchmark Treasury yields BX:TMUBMUSD10Y are little changed. The dollar index DXY is lower, while oil prices (CL.1) rise and gold futures (GC00) are trading around $4,610 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 6944.47 0.33% 2.51% 1.45% 16.96% Nasdaq Composite 23,530.02 0.21% 2.28% 1.24% 21.68% 10-year Treasury 4.177 -0.50 1.30 0.50 -45.30 Gold 4608 2.68% 5.59% 6.37% 67.75% Oil 59.59 2.04% 6.60% 3.80% -23.51% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
U.S. economic data due Friday includes industrial production for December, released at 9:15 a.m. Eastern, and home builder confidence in January, published at 10:00 a.m.
Federal Reserve officials expected to speak include Boston Fed President Susan Collins at 10:50 a.m., Richmond Fed President Tom Barkin at 11:00 a.m., and Vice Chair Philip Jefferson at 3:30 p.m.
Micron Technology shares $(MU)$ are jumping, taking other memory-chip plays higher, after board member and former TSMC co-CEO Mark Liu bought about $8 million worth of stock.
Companies reporting earnings on Friday include Regions Financial $(RF)$, State Street $(STT)$ and PNC Financial Services $(PNC)$.
It's possible that the U.S. Supreme Court releases its judgement on the Trump tariffs. But then that was also the case last Friday.
U.S. markets will be closed on Monday for Martin Luther King, Jr Day.
Best of the web
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Donald Trump's first Venezuela oil sale deal goes to megadonor's company.
Chinese AI developers say they can't beat America without better chips.
The chart
Source: BTIG
Worries about the financial health of lower-income consumers has been weighing on shares of restaurant groups for quite a while. Indeed, Jonathan Krinsky, technical guru at BTIG, notes that the Russell 3000 Restaurant Index (RGUSDRT) had a peak to trough fall of 20% last year. But after bottoming in November it has had a good bounce and is now breaking out of a base and multi-month downtrend, according to Krinsky. With the RGUSDRT still barely up over the last three years, it "suggests the group has likely turned the corner, and likely has further upside over the coming months," he adds.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name NVDA Nvidia TSLA Tesla TSM Taiwan Semiconductor Manufacturing GME GameStop INFY Infosys AMD Advanced Micro Devices MU Micron Technology AAPL Apple IBRX ImmunityBio AMZN Amazon.com
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-Jamie Chisholm
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January 16, 2026 06:45 ET (11:45 GMT)
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