Summary
Attractive opportunities can be found among the US and European cyclical tech stocks as well as within the Taiwanese and Korean semiconductor sectors.
Key points
- The main global theme to follow is the monetisation of AI capital expenditure (capex) programmes. To date, the US tech winners have been those companies that are engaging in substantial AI investments. The question is how and/or when will these be monetised.
- US: We expect a reset of the US tech sector valuation levels. While tech earnings will continue to grow, we anticipate that the earnings growth for the broader market to accelerate, leading to a narrowing of the valuation gap between the tech winners and the rest of the market. We remain concerned about the high US tech sector valuation levels, in particular those of the mega caps names. Conversely, the outlook for tech companies, beyond the AI capex beneficiaries, is mixed, offering some opportunities among the most cyclical companies that are trading at multi-year lows.
- Europe: We believe the recent under-performance of select European Tech companies is currently offering attractive investment opportunities for a structurally growing sector, given depressed valuations. Many of these are at multi-year cyclical lows, and we believe that the share prices are not reflecting an expected recovery in corporate spending that should materialise from next year, as AI adoption broadens out.
- Asia: We have a positive outlook for the Taiwanese and Korean semiconductor companies. We seek to diversify away from monothematic AI plays and, instead, focus on investment cases built both on AI and a broader based upcycle in 2025, following disappointing demand in 2024 (ex. AI). Both Taiwan and Korea offer opportunities in diversified investment cases at affordable valuation levels. The Korean large memory chip manufacturers should benefit from AI growth whereas the Taiwanese manufacturing sector is profiting from producing cutting-edge AI processors. Elsewhere, China’s rising competitiveness in selected segments remains difficult to navigate given US politics whilst Chinese tech stocks are more expensive than those listed in Taiwan, or Korea.
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