Equity investors seeking exposure to the hot artificial intelligence (AI) theme should look for opportunities in Asia, as US tech companies face stretched valuations, Saxo Markets said.
“Asia offers a cheaper, more earnings-anchored route into the same megatrend,” Charu Chanana, chief investment strategist at Saxo in Singapore, wrote in a note. “Roughly 70 percent of global chipmaking, 90 percent of AI memory, and almost all advanced packaging capacity sit in Taiwan, [South] Korea and Japan — making the region indispensable to the AI ecosystem.”
On the other hand, US tech valuations are elevated, and companies there are facing several risks such as concentration and circularity, she said.
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The S&P 500 Information Technology Index is trading at almost 30 times its one-year forward earnings, versus a multiple of 17 for the MSCI Asia Pacific Information Technology Index, data compiled by Bloomberg showed.
Saxo’s comments come as investors have been getting increasingly concerned about overheated valuations for some of the biggest AI winners, particularly US-based innovation leaders such as Nvidia Corp. More recently, a wave of circular deals involving OpenAI, Nvidia and other AI-focused firms has sparked additional worries that the boom is being artificially propped up.
While Asian AI-linked firms also share the “global cycle risk,” they offer better earnings visibility as much of the capital expenditure to build AI infrastructure flows into Asian supply chains, Chanana said.
“The physical build-out of AI infrastructure — chips, servers, data centers — continues at full speed, and much of that is happening in Asia,” she added.
Separately, Goldman Sachs Group Inc strategist Peter Oppenheimer, who correctly predicted Wall Street’s underperformance this year, said he expected US equities to keep lagging for the next decade.
Oppenheimer and his team recommended that investors increase diversification beyond the US as elevated stock valuations put a lid on gains.
They said they expect the S&P 500 to achieve annual returns of 6.5 percent in the coming 10 years, the weakest among all regions.
Emerging markets (EM) are projected to be strongest, at 10.9 percent a year, they said.
“Diversify beyond the US, with a tilt toward emerging markets,” Oppenheimer and his team wrote in a note. “We expect higher nominal GDP growth and structural reforms to favor EM, while AI’s long-term benefits should be broad-based rather than confined to US technology.”
The strategists said in the coming years they expect EM gains to be driven by strong earnings growth in China and India.
Asia excluding-Japan is seen as the second-best performer with a 10.3 percent annual return, they said, adding that Japan is set to achieve 8.2 percent, underpinned by earnings growth and policy-led improvements in investor payouts.
Europe is expected to hand investors a 7.1 percent annual return, they said.
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