Wall Street Turns Eyes Outside the US... Focus on AI Stocks in Emerging Markets like Korea and Taiwan

"US Tech Stocks Overheated... Emerging Markets Undervalued"

Major Wall Street investment banks are turning their eyes outside the United States to find the 'second Nvidia' in emerging markets, Bloomberg reported on the 7th (local time).

As Nvidia's stock price has tripled and the AI rally has continued in the U.S. stock market over the past year, investors are now looking toward emerging markets.

[Image source=Reuters Yonhap News]

Goldman Sachs is focusing on manufacturers within the AI supply chain, JP Morgan is investing in traditional electronics manufacturers transforming into AI leaders, and Morgan Stanley is targeting non-tech companies restructuring their business models with AI, all in search of promising companies in emerging markets.

Jitanya Kandari, Chief Investment Officer (CIO) at Morgan Stanley, said, "We see AI as a growth driver for emerging markets. Previously, we invested in direct AI beneficiaries such as semiconductor companies, but going forward, the key is to find companies across various industries that adopt AI to increase profitability."

The reason Wall Street investment banks are paying attention to AI-related stocks in emerging markets is that they are still considered undervalued compared to U.S. stocks. CIO Kandari noted that as U.S. tech stocks have risen excessively, investors are increasingly seeking alternatives in emerging markets.

According to data compiled by Bloomberg, AI stocks have led a rebound worth $1.9 trillion (approximately 2,568 trillion KRW) in emerging markets this year. In particular, semiconductor companies like SK Hynix in South Korea and TSMC in Taiwan accounted for 90% of the gains.

However, despite this upward trend, AI stocks in emerging markets are still analyzed to be undervalued compared to those in the U.S. Nvidia trades at 35 times price-to-earnings (P/E), while Asian AI companies are valued between 12 and 19 times. Bloomberg reported that the P/E ratios are 19.1 for TSMC, 15.7 for Samsung Electronics, 13.5 for Hon Hai Precision Industry (Foxconn's parent company), and 11.5 for SK Hynix.

Moreover, emerging market companies grow faster. According to Bloomberg's data, analysts expect total revenue for emerging market tech companies to have increased by 61%, which is higher than the 20% revenue growth seen in U.S. tech companies.

Meanwhile, there are also voices cautioning not to overlook the risks associated with AI stocks in emerging markets. Bloomberg explained that emerging markets are closely connected to the U.S., so if a sell-off in AI stocks begins in the U.S., it could have a global impact. Additionally, if the upward trend spreads to other sectors, AI companies could be caught up by other industries.