[SINGAPORE] Equity investors seeking exposure to the hot artificial intelligence theme should look for opportunities in Asia as US tech companies face stretched valuations, according to Saxo Markets.
“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 per cent of global chipmaking, 90 per cent of AI memory, and almost all advanced packaging capacity sit in Taiwan, 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 like concentration and circularity, she added.
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 show.
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.
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 of Saxo wrote in the note.
“The physical build-out of AI infrastructure – chips, servers, data centres – continues at full speed, and much of that is happening in Asia,” she added. BLOOMBERG
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Delivered to your inbox. Free.
