AI has created new winners in Asia – but the opportunity goes well beyond semiconductors.

SpaceX may be stealing the headlines, but it is arguably Asia that has been delivering the real excitement on technology. Asian technology companies have delivered around 3x the returns of their US equivalents, as investors have discovered that they offer similar growth rates at a fraction of the price. However, Asian technology is not just US technology in another place, it has its own distinct flavour.  

Asian technology companies have had a strong run over the past 12 months. The MSCI AC Asia Information Technology Index (USD) is up 168% over the past year[1] and rose 27% in May alone. This puts it comfortably ahead of its US equivalent – the MSCI USA Information Technology Index (USD), which is up just 55% over the past year[2].

The recent surge in interest for Asian technology has been driven by AI, with the Korean and Taiwanese markets leading the way. Korea’s Kospi index is up 205% over the past year[3] with memory giants Samsung Electronics and SK Hynix dominating returns. The Taiwanese TAIEX is up 108% over the same period[4], led by global semiconductor group TSMC. These companies are seen as important beneficiaries of the vast AI spending programme underway, with the world’s largest technology companies projected to spend $765 billion on AI infrastructure in 2026 alone.[5]

Qian Zhang, investment specialist on the Baillie Gifford’s Pacific Horizon Investment Trust, says: “These are the hardware suppliers. We have been long-term investors, enjoyed very good returns and remain happy holders.” These companies have been popular with many Asian trusts. Samsung and TSMC are the largest weights in the Schroder Asian Total Return, for example, as well as Pacific Horizon and Schroder Asia Pacific.

However, it’s not just Korea and Taiwan benefiting from the AI build-out. Japan also has exposure to the AI supply chain. Miyako Urabe, manager of JPMorgan Japanese Investment Trust, says: “We have a lot of companies within the supply chain – from chip makers, to semiconductor production equipment makers, to chemicals and materials. A broad range of companies are benefiting.” These include large companies such as Sumitomo Electric or Advantest, but also companies further down the market capitalisation ranks.

China is a different AI story again. Geopolitical tensions, and efforts by the US to withhold certain technologies have pushed China to build its own AI capabilities. Zhang says China is trying to build its own AI stack. Its goal is to pursue self-sufficiency and that means building its own equivalent of Samsung, TSMC or Anthropic. “We have selected exposures in different parts of the China AI stack – domestic chip designers, for example, that are taking market share from foreign players,” she adds. The trust holds semiconductor design group Montage.

Broader exposure

Semiconductors and their supply chain are the obvious beneficiaries of AI, but there is more going on in Asian technology. Zhang says: “Asian technology is not only one story. Various countries around Asia are catching up on areas such as digitisation or ecommerce. The best example here is India. Until 7-8 years ago, it didn’t have good mobile internet coverage. Since then, Reliance Jio has done a massive roll-out. India has gone from one of the most expensive and least penetrated mobile phone markets, to one of the cheapest and most penetrated.” This build out has created new business models that can be built on top of it, such as ecommerce.

In Vietnam, the opportunity is different again. It is a beneficiary of global supply chain repositioning and climbing higher on the value chain. Samsung makes half its smartphones in Vietnam, says Zhang. Pacific Horizon is accessing this through Vietnamese companies exposed to generalised economic growth, such as financials.

China has the most sophisticated ecommerce, platform economy and digital payments networks within Asia. Its giant platform companies such as TenCent and Alibaba have been relatively weak, but could be beneficiaries of AI, building consumer-facing applications. Dale Nicholls, manager on the Fidelity China Special Situations trust says: “If you look at TenCent and Alibaba, they’ve been pretty big underperformers, despite good growth in their businesses. The ones that are doing the spending are the ones that are suffering and it’s been a very divergent market. Certainly, cash flows will be impacted, but as a stock picker, it’s getting a bit extreme. We’re happy for them to invest if the demand is there, and the signs are still positive.”  

This is a similar pattern to that seen in the US, where investors have been more cautious on the hyperscalers who are spending big on AI. A key difference in China, says Nicholls, is that investors aren’t paying US-style multiples for those businesses.

Nicholls says China, like the US, is increasingly focused on the energy generation needed to support the AI build-out.

Nicholls says China, like the US, is increasingly focused on the energy generation needed to support the AI build-out. Energy is becoming a key bottleneck for the growth of AI. He adds: “There is a shortage throughout the whole supply chain when it comes to AI. Power is a big factor. There are lots of companies playing into that thematic in China, including on energy storage and batteries.” Nicholls has exposure to that area, alongside companies providing the power infrastructure, such as diesel or gas turbine engines “this infrastructure has been a pretty fertile area,” he adds.

In Japan, Urabe says that factory automation and machine tools are another important theme. She points out Japan’s structurally tight labour market is helping drive AI adoption and automation: “A lot of companies struggle to hire and maintain staff – it is a structural problem. If you look around the globe, you see concerns about people losing their jobs to AI, but for Japan, it could be supportive, particularly in some areas of the economy.”

“The long-term outlook for automation is positive. There is an increase in demand due to labour shortages, rising labour costs and an ageing population. Tariffs are also leading to reshoring with more production in developed countries. This has also been driven by supply chain issues and geopolitical risks.”

Technology in Asia is not a single story as it has become in the US, but multiple stories in a diverse region with countries at different stages of development. While semiconductors have dominated, trusts are also finding opportunities in India’s digital revolution, in Japanese robotics, or in Vietnamese technology production. It is a fertile environment for stock pickers.

[1] https://www.msci.com/documents/10199/f52662df-c809-4695-9f3f-060c0f2ca9fa

[2] https://www.msci.com/documents/10199/0f4c4913-aa14-42a6-8412-403e2b062bb3

[3] https://uk.finance.yahoo.com/quote/%5EKS11/

[4] https://uk.finance.yahoo.com/quote/%5ETWII/

[5] https://www.goldmansachs.com/insights/articles/tracking-trillions-the-assumptions-shaping-scale-of-the-ai-build-out