In a world captivated by the potential of artificial intelligence (AI), some of the biggest money managers are expanding their search for AI winners beyond the United States. As the global enthusiasm for AI has propelled significant gains in American tech stocks, investors are now turning their attention to emerging markets for better value and a larger array of options.
Goldman Sachs Asset Management is specifically looking for investment opportunities in manufacturers of AI supply-chain components like cooling systems and power supplies. JPMorgan Asset Management favors traditional electronics manufacturers that are transitioning into AI leaders, while Morgan Stanley is placing bets on companies in non-tech sectors that are reshaping their business models using AI.
“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.”
AI stocks have already fueled a $1.9 trillion rebound in emerging markets this year, with Taiwanese and South Korean chip companies leading the way. Taiwan Semiconductor Manufacturing Co. and SK Hynix Inc. have accounted for 90% of the gains. Despite the rally, emerging-market AI stocks still offer significantly better value compared to their American counterparts. For instance, while Nvidia trades at 35 times its projected earnings, Asian AI giants are typically valued between 12 and 19 times their earnings.
Furthermore, developing markets provide the potential for faster growth. Analysts predict a 61% increase in earnings for emerging-market technology companies as a whole, compared to a projected 20% rise for US peers.
The current leaders in the emerging-market AI scene are companies that were already technology frontrunners before the AI boom, such as TSMC and Hon Hai Precision Industry Co. These companies, along with chipmaker MediaTek Inc., have delivered impressive returns and are considered top holdings in various investment funds.
“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 adaptation of this technology means these companies are far ahead of their competitors in leveraging newer evolutions.”
Investor interest in emerging-market AI opportunities is growing. For example, Hanmi Semiconductor Co., majority-owned by billionaire Kwak Dong Shin’s family in South Korea, has experienced a remarkable 120% surge this year. Similarly, IT services provider FPT Corp. in Vietnam has seen a nearly 20% increase in value, making it the top performer among actively managed emerging market funds in the US.
Investments in emerging-market AI can also be witnessed through exchange-traded funds, with more than half of the inflows this year going into the iShares MSCI EM ex-China ETF. This ETF includes companies investing in AI within its top 10 holdings.
Established businesses are also attracting fresh investor interest by signaling their entry into the AI realm. Saudi Arabia, for example, has become a hub for Chinese AI ventures, including Alibaba Group Holding Ltd.’s cloud partnership with Saudi Telecom Co. Meanwhile, India’s Reliance Industries Ltd., led by billionaire Mukesh Ambani, has developed a chatGPT-style model with capabilities in 22 Indian languages and is actively involved in the digital transformation of the country.
While investing in AI in emerging markets presents opportunities, it is not without risks. Emerging markets are closely intertwined with the US market, meaning an AI selloff in the US could have a global impact. Conversely, if stock-market gains broaden to other sectors, AI-focused companies may lag behind.
Nevertheless, investors are increasingly finding viable alternatives to over-extended US tech stocks in emerging markets, according to Morgan Stanley’s Kandhari. “In emerging markets, they are seeing AI as an under-appreciated driver going forward,” she said. “There’s a lot of low-hanging fruit to juice there.”
Frequently Asked Questions
1. What are some investment strategies in emerging-market AI?
Investors are looking for opportunities in manufacturers of AI supply-chain components, traditional electronics manufacturers transitioning into AI leaders, and companies in non-tech sectors adopting AI to enhance earnings.
2. How do emerging-market AI stocks compare to those in the US?
Despite significant gains in the US AI market, emerging-market AI stocks are considered better value. Asian AI giants are typically valued between 12 and 19 times their earnings, while Nvidia, a leading US AI company, trades at 35 times its projected earnings.
3. Which companies have been successful in the emerging-market AI scene?
Companies that were already technology leaders prior to the AI boom, such as TSMC and Hon Hai Precision Industry Co., have performed exceptionally well. These companies, along with MediaTek Inc., are among the top holdings in various investment funds.
4. What are the risks associated with investing in emerging-market AI?
Since emerging markets are closely tied to the US market, an AI selloff in the US could have a global impact. Additionally, if stock-market gains broaden to other sectors, AI-focused companies may lag behind.
5. Which established businesses are venturing into AI in emerging markets?
Saudi Arabia has become a hotbed for Chinese AI ventures, including Alibaba Group Holding Ltd.’s cloud partnership with Saudi Telecom Co. India’s Reliance Industries Ltd. is also actively involved in the digital transformation of the country, developing AI models and capabilities in multiple languages.
In addition to the information provided in the article, here are some further details about the industry, market forecasts, and issues related to the emerging-market AI sector:
The AI industry has been experiencing rapid growth, with global spending on AI predicted to reach $110 billion by 2024. Emerging markets are playing a significant role in this growth, as they present not only value but also the potential for faster expansion compared to established markets.
One of the key drivers of the emerging-market AI scene is the manufacturing sector. Manufacturers of AI supply-chain components such as cooling systems and power supplies are being targeted by investors. These components are crucial for the development and deployment of AI technologies, making them attractive investment opportunities.
Another area of focus for investors is traditional electronics manufacturers that are transitioning into AI leaders. These companies have the advantage of existing infrastructure and expertise, which they can leverage to capitalize on the growing demand for AI technologies.
Furthermore, companies in non-tech sectors are also adopting AI to enhance their earnings. This includes industries such as healthcare, finance, transportation, and retail, which are integrating AI into their business models to improve efficiency, customer experience, and profitability.
The market forecasts for emerging-market AI stocks are quite promising. Analysts predict a significant increase in earnings for emerging-market technology companies as a whole, with a projected 61% rise compared to a 20% increase for their US counterparts.
Investor interest in emerging-market AI opportunities is on the rise. This can be seen through the performance of companies in these markets, such as Hanmi Semiconductor Co. in South Korea and FPT Corp. in Vietnam, which have achieved substantial gains in their stock value.
Exchange-traded funds (ETFs) focusing on emerging-market AI companies are also attracting investments. For example, the iShares MSCI EM ex-China ETF includes companies investing in AI within its top 10 holdings, reflecting the growing interest in the sector.
While investing in emerging-market AI presents opportunities, it is not without risks. The close connection between emerging markets and the US market means that an AI selloff in the US could have a global impact. Additionally, if stock-market gains broaden to other sectors, AI-focused companies may lag behind in terms of performance.
To learn more about the emerging-market AI scene and related investment opportunities, you can visit the following links:
– Goldman Sachs Asset Management: Goldman Sachs Asset Management offers insights and investment strategies across various sectors, including AI and emerging markets.
– JPMorgan Asset Management: JPMorgan Asset Management provides investment solutions and research on emerging markets and AI-related opportunities.
– Morgan Stanley Investment Management: Morgan Stanley Investment Management offers a range of investment products and resources for individual investors, including insights on AI and emerging markets.
Please note that the URLs provided above are examples and may not be valid. It’s recommended to search for the official websites of the mentioned institutions for accurate and up-to-date information.
The source of the article is from the blog mivalle.net.ar