Who’s the new Nvidia? Wall Street hunts for next wave of AI winners beyond the US
- AI stocks are already leading a US$1.9 trillion rebound in emerging markets this year, with TSMC and SK Hynix accounting for 90 per cent of gains
- Analysts see a 61 per cent increase in earnings for emerging-market AI tech firms as a whole, compared to a 20 per cent rise for US peers
“We see AI as a growth driver in emerging markets,” said Jitania Kandhari, deputy chief investment officer at Morgan Stanley Investment Management. “While we have previously invested in direct AI beneficiaries like semiconductors, going forward it will be key to look for companies in different industries that are adopting AI to enhance earnings.”
Despite this rally, most emerging-market AI stocks still offer far better value than their US peers. While Nvidia trades at 35 times its projected earnings, Asian AI giants are typically valued between 12 and 19 times.
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“The tech companies that have historically been the suppliers to the big names, may well emerge as the big players themselves,” said Anuj Arora, head of emerging markets and Asia-Pacific equities at JPMorgan Asset Management. “The early adoption of this technology means these companies are far ahead of their competitors in leveraging newer evolutions.”
Still, the buzz is widening and more investors are pouring in money.
For emerging markets-focused exchange-traded funds, more than half of all inflows this year have gone into the iShares MSCI EM ex-China ETF, whose top 10 holdings include companies that are investing in AI, according to data compiled by Bloomberg.
Elsewhere, established businesses have attracted fresh investor interest after signalling that they are moving into AI.
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“We would point to the potential ‘national champions’ mindset that is developing around AI in some markets,” said Luke Barrs, global head of fundamental equity client portfolio management at Goldman Sachs. “Countries are focused on fostering home-grown companies that can be future leaders.”
The trade is not without its risks.
Emerging markets are tied closely to the US, meaning that an AI sell-off could echo across the world. Alternatively, if stock-market gains broaden out, then other sectors may catch up and AI names could lag behind.
Still, investors are increasingly finding emerging market alternatives to US tech stocks that have overextended themselves, said Morgan Stanley’s Kandhari.
“In emerging markets, they are seeing AI as an underappreciated driver going forward,” she said. “There’s a lot of low-hanging fruit to juice there.”