Who’s the new Nvidia? Wall Street hunts for next wave of AI winners beyond the US
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Some of the world’s biggest money managers are hunting for the next wave of artificial intelligence (AI) winners in emerging markets for better value and a bigger pool of options. 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. The asset management arm of Morgan Stanley said it is looking specifically for stakes in the manufacturers of AI supply-chain components, such as cooling systems and power supplies. Apple supplier Foxconn to build ‘AI factories’ using US hardware leader Nvidia’s chips and software. 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. Developing markets also offer faster growth. Analysts see a 61 per cent increase in earnings for emerging-market AI companies as a whole, compared to the 20 per cent rise that they were pencilling in for US peers. So far, the stars of the show are those companies which already were technology leaders before the AI rally, such as TSMC and Hon Hai Precision Industry, also known as Foxconn Technology Group. That duo and Samsung, also a chip maker, feature in a JPMorgan single-country fund that invests in Taiwanese equities and has outperformed 96 per cent of more than 1,400 peers. The three stocks are also among the top-10 holdings of the iShare MSCI EM Ex-China ETF, which has doubled in value over the past five months. For example, Hanmi Semiconductor Co, majority-owned by billionaire Kwak Dong Shin’s family, has surged about 120 per cent this year for the best gains among members of the MSCI Emerging Markets Index. It as also seen its share of foreign ownership increase in recent weeks. In 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. Established businesses have attracted fresh investor interest after signalling that they are moving into AI. Reliance Industries, the petroleum giant run by billionaire Mukesh Ambani, has developed a Google-style AI model with capabilities in 22 Indian languages. The company is also part of the digital transformation in the country of 1.4 billion people. 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.
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