According to Financial Times News, Asian markets are showing alarming concentration in AI-related stocks, with six technology companies accounting for 50% of Hong Kong’s Hang Seng returns this year. In South Korea, just two stocks drive 40% of index performance, while Taiwanese chipmaker TSMC alone contributes more than half of the Taiex’s year-to-date gains. The analysis reveals extreme valuations among Chinese chipmakers, with Cambricon Technologies trading at a price-to-earnings ratio of 506.2 and SMIC at 221.3 times earnings, compared to Nvidia’s 57.7 multiple. Société Générale’s Frank Benzimra warned that “if you assume you have a bubble in the US then you have one in Asia,” highlighting the interconnected nature of these markets. This concentration raises critical questions about market stability and the sustainability of current valuations.
Beyond Bubble Talk: A Structural Realignment
While the concentration metrics certainly raise red flags, they may also reflect a fundamental restructuring of global technology supply chains. Asia isn’t merely riding America’s AI coattails—it’s building the foundational infrastructure that makes the AI revolution possible. Companies like TSMC represent the manufacturing backbone of advanced computing, while memory chip producers like SK Hynix are essential for training large language models. This isn’t speculative investment in AI applications but strategic positioning in the essential hardware layer. The current concentration might simply reflect market recognition that certain Asian companies have become indispensable to the global AI ecosystem, much like how oil producers dominated energy indices during previous industrial transformations.
Valuation Metrics in Historical Context
The eye-watering P/E ratios of Chinese chipmakers need contextual analysis beyond simple comparisons to US counterparts. During the dot-com bubble, companies like Cisco traded at similarly elevated multiples while building the internet backbone that would eventually transform global commerce. What distinguishes potentially sustainable high valuations from bubble territory is whether companies are investing in durable competitive advantages and infrastructure with long-term utility. The semiconductor industry’s capital intensity and technological barriers to entry create natural moats that application-layer software companies lack. However, the cyclical nature of semiconductor demand remains a critical risk factor that investors seem to be discounting in their current enthusiasm.
Asia’s Divergent AI Trajectories
The blanket characterization of “Asian AI stocks” obscures important regional distinctions that affect investment sustainability. Taiwan and South Korea’s dominance in semiconductor manufacturing represents established technological leadership with proven global demand. China’s situation is more complex—while companies like Cambricon benefit from domestic substitution policies and protected markets, they face significant challenges in achieving global competitiveness amid export restrictions. Meanwhile, Japan’s strength in semiconductor equipment through companies like Tokyo Electron represents yet another strategic position in the AI value chain. Investors need to differentiate between companies serving global markets with irreplaceable technology and those primarily benefiting from regional protectionism or speculative momentum.
The Memory Chip Supercycle Thesis
The argument that we’re entering a “supercycle” for data storage and memory chips deserves serious consideration. The computational demands of generative AI models are fundamentally different from previous computing paradigms, requiring massive memory bandwidth and specialized architectures. As AI moves from training to inference and deployment across countless applications, the demand for advanced memory solutions could sustain elevated growth for years. However, semiconductor history is littered with companies that mistook cyclical upturns for permanent paradigm shifts. The critical question is whether AI represents a genuine step-change in semiconductor demand or simply another cyclical peak that will eventually correct as capacity catches up with demand.
Strategic Implications for Global Investors
For international investors, the current concentration creates both risks and opportunities. The dependency on US AI momentum means Asian tech stocks could face significant volatility if American enthusiasm wanes. However, the valuation gap between Asian and US tech—with the Hang Seng Tech index trading at 20 times earnings versus Nasdaq 100’s 35 multiple—suggests there might be relative value opportunities for selective investors. The key is distinguishing between companies with sustainable technological advantages and those riding speculative waves. Investors should focus on companies with proven manufacturing expertise, intellectual property moats, and diversified customer bases rather than betting broadly on the “AI theme” across Asian markets.
