Amundi says Asian AI tech rally has room to run past $5 trillion spend

The AI-driven rally in Asian technology stocks is not a bubble and has further upside, according to Europe's largest asset manager.

Amundi SA said the rally in Asian semiconductor and hardware stocks still has room to extend, with AI infrastructure spending projected to reach $5 trillion by 2030, unless a shift in US interest-rate expectations derails the investment cycle.

"Current valuations are supported by very high earnings expectations and do not yet show signs of a bubble," said Florian Neto, head of investment for Asia at Amundi.

South Korea's KOSPI has surged nearly 100 percent year-to-date, while Samsung Electronics Co. and SK Hynix Inc. have repeatedly hit record highs. SK Hynix has gained more than 1,000 percent over the past year and Samsung has jumped more than 400 percent, according to Bloomberg data. Taiwan Semiconductor Manufacturing Co. rose 137 percent in the same period.

The investment outlook hinges on the Federal Reserve's interest rate path, Amundi said. A hawkish surprise that rattles the hyper-scalers underpinning AI spending — companies such as Alphabet Inc., which this week announced plans to issue $80 billion in stock to fund data center expansion — could interrupt the rally. Hardware suppliers supporting these networks still have substantial upside, the asset manager said.

The rally has become so concentrated that it is creating mechanical selling pressure. Funds bound by single-stock cap rules — typically limiting exposure to 10 percent of assets — have increasingly hit those limits as Samsung and SK Hynix touch daily highs, according to Bloomberg. GAM Investment Management in Zurich and Jupiter Asset Management in Singapore have reshuffled portfolios to stay compliant.

The constraints are showing up in record foreign outflows from South Korean equities this year, as funds rebalance rather than exit on conviction. "We are taking profit more from a portfolio construction point of view, and this is one of the risks," Neto said.

The Fed Wild Card

The Federal Reserve's next policy decision will be critical for the trajectory of Asian tech stocks. If the Fed signals a slower pace of rate cuts, it could raise the cost of capital for the massive data center buildout that has fueled demand for chips from Nvidia Corp., Broadcom Inc., and their Asian suppliers. Broadcom shares tumbled more than 12 percent Thursday despite solid quarterly results, as investors weighed whether the AI trade had run too far.

UBS analysts said in a note Thursday that "any near-term volatility should not come as a surprise after the recent strong rally," but maintained that "solid AI fundamentals" should support further gains.

For investors seeking exposure beyond the two Korean chip giants, alternatives exist. "Investors may seek to indirectly expand semiconductor exposure through affiliates, holding companies, or insurers with significant stakes in the two companies," said Ha SeokKeun, chief investment officer at Eugene Asset Management in Seoul.

This article is for informational purposes only and does not constitute investment advice.