Asian tech stocks were off to a turbulent start on the week commencing 8th June, following a sell-off that started in the US after a large US semiconductor company missed revenue expectations and provided no upgrade to AI guidance.1 Asia tech stocks are directly linked to the US semiconductor cycle – as they share the same supply chain and investor positioning.
Demand disappointment for AI tech hardware is a risk and the bear case is that hyperscaler capex moderates because customers have over-ordered. But I don’t believe that one company’s quarterly earnings report signals an oncoming industry trend. Plus, this might not be a bad earnings report, it’s just that market expectations have become too high for AI guidance to be continuously raised.
In Asia, the AI investment narrative has become quite concentrated. It is driven by a few names in Korea and Taiwan. More so, AI-driven semiconductor exports could approach around 30% of Korea and Taiwan’s GDP in 2026 2.
These concentration risks have led to the market becoming far more fragile. Thus when one company disappoints or there is disruption to demand or supply, we see outsized market volatility.
Even though Korea and Taiwan stocks have soared over the past couple of years, valuations are less stretched than feared. The 5-year average of MSCI Korea has been around 10.5x and now it’s fallen to below 7x as Korean tech stocks report record earnings.
While Korean semiconductor valuations appear discounted on a forward earnings basis, the key question is whether the current pace of AI capex - and the earnings growth it supports – could be sustained.
