Money managers are actively searching for the next significant opportunities within Asia's technology sector. This strategic shift comes as concerns over overvalued stocks and evolving market dynamics prompt a reassessment of artificial intelligence investments.
The stock market surge, initially fueled by the debut of ChatGPT, is now in its fourth year. However, prominent companies such as Taiwan Semiconductor Manufacturing Co. and SK Hynix Inc. are experiencing a slowdown in momentum. Consequently, investors are increasingly turning their attention to smaller companies like MediaTek Inc. and Zhongji Innolight Co.
Industry analysts suggest that the major players supplying critical AI components are likely to rebound following their recent pullbacks. Nevertheless, the industry's focus is shifting. The emphasis is moving away from the development of large language models and towards the practical applications of AI technology and cost reduction strategies.
This market rebalancing began last month when Alphabet Inc. unveiled an enhanced Gemini model and established agreements with other companies for its proprietary AI chips. The introduction of Amazon.com Inc.'s latest accelerator further contributed to a redirection of investment away from stocks heavily associated with OpenAI and the chip giant Nvidia Corp.
SoftBank Group Corp. of Japan, perceived as having close ties to OpenAI, saw its shares decline by 38% in November, marking its most significant monthly drop in 25 years. As previously reported, TSMC experienced a 2% decrease, and SK Hynix fell by 8% last month, cooling off after substantial gains.
ChatGPT is now facing intensifying competition, and Nvidia's training chips are receiving less attention as application-specific integrated circuits gain prominence. This situation is causing investor apprehension regarding potential price pressures.
Han Sangkyoon, chief investment officer at Quad Investment Management in Seoul, commented that if large language models become widely adopted products, "the ones with cheaper costs will become the winner." He anticipates that the next six months will be crucial in determining "how the bubble created by Nvidia and OpenAI could burst."
Emerging Leaders in Asian Markets
Instead of completely exiting the AI investment landscape, investors are diversifying their portfolios by selecting different stocks. Taiwan's MediaTek, a chip designer collaborating with Alphabet, achieved its strongest weekly performance since 2002 following the Gemini launch. South Korea's IsuPetasys Co., a manufacturer of circuit boards for Alphabet, saw its stock jump 18% to a record high last week.
These market movements indicate that Asian suppliers can achieve profitability irrespective of which American technology giant leads the supply chain.
Egon Vavrek, head of emerging markets and Asia equities at BlackRock Inc., stated, "Around 90% of the hardware manufactured globally, which is fitting into data centers, servers, testing environment, anything you need from manufacturing the chips, memory cards, or even testing, cooling systems, all comes from Taiwan, Korea, Japan, Thailand, and even mainland China."
Despite the ongoing AI competition between the United States and China, their respective supply chains maintain interconnectedness. Zhongji, a manufacturer of optical transceivers based in Shandong, derives 22% of its revenue from Alphabet and 11% from Amazon. Its shares climbed 11% last week, reaching a new peak.
Established Leaders Maintain Strong Positions
The established leaders in the AI sector are far from being sidelined. TSMC possesses the most advanced chip manufacturing technology and produces components for all major industry players. Its shares are on track for a third consecutive year of gains, pushing its market valuation above $1 trillion.
According to research from Macquarie Group Ltd., SK Hynix and Samsung Electronics Co. collectively dominate over 90% of the global market for high-bandwidth memory, another essential component for AI applications.
SK Hynix shares have more than tripled this year, and negative sentiment towards the stock has diminished. Data from S&P Global Inc., as observed by Bloomberg, indicates that short interest has decreased to 0.6% of the free float, down from over 3% in May.
However, investors continue to seek out new investment ideas, driven by market news, concerns about stock valuations, or limitations on their investment holdings.
Timothy Fung, head of Asia equity strategy at JPMorgan Private Bank in Hong Kong, noted, "AI remains front and center of tech investors’ minds, even after three years into the theme. Opportunities are evolving across the AI supply chain, but remain linked to physical infrastructure."