(Bloomberg) — The debate is raging over whether AI stocks have run their course, but for some investors, another dip in prices could be a buying opportunity.
Most read articles on Bloomberg
Asian asset managers are still searching for their next purchase after the region's tech stocks suffered their biggest two-day drop on record this week, reflecting unwavering confidence in the trade that has underpinned the rally in global stocks. With AI's long-term outlook still not bleak, Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. and SK Hynix Co. remain attractive bets, they say.
“Given how far stocks have fallen, some stocks certainly look more attractive than they were two weeks ago,” said William Yuen, investment director at Invesco Hong Kong. “We would likely maintain at least these tech positions or add to them if we see an opportunity for further selling.”
The dispute gets to the heart of a question that has vexed stock investors for months: Has the AI trading frenzy finally reached a tipping point? Cracks are opening as analysts question whether the industry can live up to the hype and reap the benefits of the huge investments being made.
Below are six charts that show where things stand and why some investors have faith in the deal.
Asian tech stocks remain a force to be reckoned with even as stock indexes head for their longest weekly decline since late 2022. TSMC, Samsung and SK Hynix have a combined market capitalization of $1.2 trillion, up from $312 billion a decade ago. Their weighting in the MSCI Emerging Markets Index has risen to about 15% from less than 4% at the end of 2007, according to Bloomberg calculations.
Analysts are raising earnings forecasts for major Asian semiconductor stocks despite the recent share price sell-off, unlike in the U.S., where the consensus has been lowered since late July. Morgan Stanley restored TSMC to its top pick following the recent share price sell-off, citing the company's “quality and defensiveness in a protracted semiconductor downcycle.”
“Confirmation of rising prices and continued strength in AI capital spending should be key catalysts,” Morgan Stanley analysts including Charlie Chan wrote in a Tuesday note.
TSMC and Samsung reported second-quarter results that beat expectations by a wide margin, but analysts said TSMC's margin guidance suggested prices for its most advanced chips could rise. They and SK Hynix are expected to report profit growth of 26% to 55% next year, compared with an average of just 12% for companies in the MSCI Asia Pacific Index, according to data compiled by Bloomberg.
The story continues
“TSMC is the largest foundry, so I think they're in a pretty stable position,” said Ganesh Ramachandran of Lazard Asset Management, whose $1 billion Lazard Emerging Markets Fund has the stock as one of its largest holdings. As for SK Hynix, he said the company's memory business is a cyclical industry that is finally “starting to recover.”
The Bloomberg Asia Pacific Semiconductor Index has fallen about 20% from its July high, but the decline is relatively small compared to the biggest drop recorded in the past 20 years. To put the recent decline in perspective, the index fell about 80% during the global financial crisis and the collapse of the dot-com bubble.
Tech stocks in the region have become cheaper after recent losses, which could make them more attractive to investors. Their valuations, as measured by forward price-to-earnings ratios on the Bloomberg index, are below their averages over the past decade as earnings consensus rises and share prices fall.
But despite the optimism, investors are also hedging their bets. Calls for protection against further declines in TSMC and Samsung shares have surged this week, with TSMC's volatility skew approaching its most bearish level since May of last year.
Top Technology Stories
Amazon.com Inc. has introduced a new secret weapon to its same-day delivery operations: a fleet of Kia Soul vehicles.
Tokyo Electron reported better-than-expected sales growth and raised its profit forecast for the fiscal year that ends in March.
Apple is planning a new version of the Mac mini, its smallest desktop computer ever, as part of a major refresh of its Mac product line that will feature AI-focused chips.
–With assistance from Sangmi Cha.
Most read articles on Bloomberg Businessweek
©2024 Bloomberg LP
