Nvidia has been the center of attention amid the artificial intelligence craze. The stock has generated significant value amid record-breaking revenues and earnings fuelled by strong demand for its AI-powered graphics processing unit. With the stock up by more than 300% over the past 12 months, money managers are searching for the next wave of artificial intelligence winners.
AI In Emerging Markets
Emerging markets have emerged as the center of attention as they might have better value and a bigger pool of investment options for gaining exposure to AI. While asset managers have focused their investments on direct AI beneficiaries like semiconductors, a seismic shift exists as most explore opportunities in different industries adopting AI.
Asset managers at Goldman Sachs are specifically exploring investment options in AI supply chain components manufacturers such as cooling systems and power supplies. On the other hand, asset managers at JPMorgan are exploring investment opportunities around traditional electronics manufacturers that are well poised to be AI leaders. Asset managers at Morgan Stanley, on their part, have set sights on sectors where AI is expected to reshape business models beyond tech sectors.
Increased focus on emerging markets comes as artificial intelligence stocks spearhead a $1.9 trillion rebound of the markets. Taiwan Semiconductor Manufacturing Co. and SK Hynix Inc. account for nearly 90% of the gains in the emerging markets. Amid the concentration in a small clique of companies, most AI stocks in emerging markets offer better value than US peers trading at premium valuations.
AI Valuation Concerns
Nvidia is a classic example of US AI play trading at 75 times its projected earnings, as most AI stocks in emerging markets trade between 12 to 19 times earnings. The push for investment opportunities away from the US also comes as AI investment opportunities in emerging markets offer faster growth. Analysts already project a 61% increase in earnings for emerging market technology companies.
While the show’s stars remain technology leaders in their respective sectors, analysts expect companies that have been suppliers to be big names to outperform. Koreas Hanmi Semiconductor is one of the stocks on the move, having already surged by 120%, followed by IT service provider FPT Corp, which has jumped by almost 20% year to date.
Asset managers have recognized that the massive demand for all-in-one AI will necessitate processing huge amounts of data stored and processed in data centers. That’s where the industrial opportunities come in. Any company that supplies anything to data centers follows Nvidia’s lead and gets scooped by investors.
In addition, the prominent asset managers are also paying attention to emerging markets-focused exchange-traded funds. MSCI EM ex-China ETF continues to attract strong interest, given that its top 10 holdings include companies investing in artificial intelligence.
Nevertheless, focusing on emerging markets is not without its fair share of risks, given that the markets are closely tied to the US. Consequently, an AI selloff in the US often results in the same reaction in the developing markets.
