Leading global investment firms are broadening their horizons to discover the next generation of artificial intelligence (AI) frontrunners located outside the United States. This shift comes as the AI sector experiences a significant upswing, highlighted by Nvidia Corp's (NVDA, Financial) value tripling and a 50% increase in a principal US semiconductor index in under a year. Investors are now turning their attention to emerging markets for more attractive valuation and a wider array of investment opportunities.
Goldman Sachs Group Inc.'s (GS, Financial) asset management division is keen on identifying potential investments in AI supply chain components, including cooling systems and power supplies. Similarly, JPMorgan Asset Management is showing interest in traditional electronics manufacturers evolving into AI pioneers. Morgan Stanley's investment managers are placing their bets on companies across various non-tech industries that are integrating AI into their business models to boost earnings.
The surge in AI has already led to a $1.9 trillion increase in emerging markets this year, with companies like Taiwan Semiconductor Manufacturing Co. (TSM, Financial) and SK Hynix Inc. (000660.KS) contributing to 90% of these gains. Despite the rally, AI stocks in emerging markets are still considered to be more reasonably priced compared to their US counterparts, with companies like Nvidia trading at 35 times its forecasted earnings against Asian AI giants valued between 12 and 19 times.
Emerging markets are also projected to experience faster growth, with analysts expecting a 61% increase in earnings for technology companies in these regions, compared to a 20% increase for US companies. Leading the charge are firms that were already tech leaders before the AI boom, such as TSMC and Hon Hai Precision Industry Co. (2317.TW), alongside MediaTek Inc. (2454.TW), which have seen significant performance in investment funds focused on Taiwanese equities.
The excitement around AI is expanding, attracting more investments. For instance, Hanmi Semiconductor Co. (042700.KQ), has seen its value increase by approximately 120% this year, marking the highest gains within the MSCI Emerging Markets Index. Additionally, FPT Corp. (FPT.VI) in Vietnam has witnessed a near 20% rise this year, significantly benefiting the Ashmore EM Frontier Equity Fund, making it one of the top performers among actively managed emerging market funds in the US.
Moreover, established businesses signaling a shift towards AI have garnered investor interest. For example, Alibaba Group Holding Ltd.'s (BABA, Financial) cloud partnership with Saudi Telecom Co. (7010.SR) and Reliance Industries Ltd.'s (RELIANCE.NS) development of a chatGPT-style model in India highlight the growing embrace of AI technologies.
While the burgeoning interest in AI presents lucrative opportunities, it also comes with its share of risks, particularly for emerging markets closely tied to the US. A downturn in AI stocks in the US could have global repercussions. Nonetheless, the search for alternative investment opportunities in emerging markets continues to gain momentum among investors looking to capitalize on AI's transformative potential.
