Forget US megacaps. Buy Asia’s cheaper AI stocks, say analysts, naming Singapore picks

[SINGAPORE] A shift beyond US tech megacaps and rising global demand for artificial intelligence (AI) could spur AI opportunities across Asia, said JP Morgan Asset Management (JPMAM).

The argument for Asian assets could be strengthening, especially as recent Trump administration moves – from assaults on US Federal Reserve independence to a bid for control of Greenland – have put wind back into the sails of the “Sell America” narrative.

As the investment thesis centred on diversification and hedging against US exposure takes hold of global markets, AI is “increasingly benefiting from global demand, with (a) broadening beyond US tech megacaps”, said JPMAM global market strategist Raisah Rasid.

This comes on the back of rapid adoption of AI, which continues to enjoy durable demand, capex spending and trade resilience amid China’s push for technological self-sufficiency, outlined in its five-year plan.

The spotlight is now on Asia, an alternative investment venue that offers rebalancing to reduce risks during a year where portfolio construction, Rasid noted, should focus on building against volatility, stretched positionings and steady income generation.

Moreover, Asian corporate governance reforms also “present new investment opportunities”, with the trend set to benefit Asia equities and countries such as Singapore, Japan and South Korea, she added.

Beyond US tech megacaps: The case for Asia equities

A shift beyond US tech megacaps is under way, even as US equities remain supported by “healthy” earnings growth, “robust” medium-term earnings and AI demand, Rasid said.

This comes as valuation gaps between US equities and other markets are set to narrow, and as AI bubble fears stir wariness about pricey tech valuations.

A rebalancing away from the US could unleash opportunities for Asia, which some see as a more favourable investment venue for AI exposure, due to cheaper valuations.

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Rasid highlighted “wide valuation dispersion” and “healthy stock fundamentals” backed by themes such as tech demand and corporate governance in Asia.

These factors should strengthen the case for investors to take an active approach when it comes to adding Asian equities in portfolios, she said. “Supply chain build-out and regional expansion is benefiting Asian corporates with the continued demand growth likely to translate to further earnings per share upgrades over the next six to 12 months.”

Asian economies with a place in the tech supply chain could benefit from this trend – as AI opportunities exist in both the hardware and software parts of the region’s tech supply chain, the global market strategist said.

High-dividend names in China, such as in energy and financials, could present opportunities for investors looking to rebalance their portfolios. Meanwhile, South Korea and Taiwan have leadership in the space of advanced logic chips that are less than 10 nanometres, she added.

Asean: Semiconductors and tariffs opportunities 

Within Asean, Malaysia and Thailand are set to be prime beneficiaries from the outsourced semiconductor assembly and test (OSAT) sector.

Rasid noted that Malaysia has emerged as a leader in the OSAT part of the semiconductor supply chain, and that its pole position is likely to be maintained.

This comes as Malaysia accounts for 13 per cent of global market share for the semiconductor packaging, assembly and testing sector – with the US and China among the leading destinations for its semiconductor exports.

Rasid noted that tariff developments could benefit South-east Asia by diverting trade flows and increasing the region’s exports to the US.

The first Trump administration saw a shift in supply chains towards Asean markets, as China’s exports to the US fell, she said.

This could occur again, unless tariffs are implemented on goods that are transhipped – referring to goods that are passed off as originating from, and transported through, countries that face lower tariffs as a tariff-evasion method.

Corporate governance reforms could fuel Singapore’s next rally  

Corporate governance reforms across Asia are also contributing to investment opportunities in the continent, Rasid said.

She noted that Japan and South Korea have made progress on reform programmes to improve shareholder value while engaging in share buybacks.

A similar shift is under way in Singapore’s equity landscape, where progress in corporate reforms could potentially fuel the next market rally, she added.

She pointed to the Value Unlock programme by the Monetary Authority of Singapore and the Singapore Exchange (SGX), which targets listed companies with the aim of enhancing shareholder value and deepening investor engagement; as well as the proposed dual-listing highway that allows companies to list on the SGX and Nasdaq with one prospectus, and to raise capital from two markets.

“With forward price-to-earnings valuations at 15.8 times, Singapore equities present a compelling investment opportunity within Asian equity allocations,” Rasid said.

Singapore AI stock picks

OCBC concurred in a Jan 27 report that Singapore presents significant AI opportunities in areas such as data centres, telecommunications, energy providers and semiconductors.

This is driven by the global AI boom and the Republic’s focus on innovation and technology upgrading, said the report by equity research analysts Chu Peng, Ada Lim and Andy Wong.

SGX-listed companies that may benefit from AI opportunities span real estate investment trusts (Reits) with data centre-exposure, power providers and communication service providers.

OCBC named Reits such as Keppel DC Reit , Mapletree Industrial Trust , CapitaLand Ascendas Reit and Stoneweg Europe Stapled Trust ; power providers such as Keppel , Keppel Infrastructure Trust , Hong Leong Asia and Sembcorp ; and communication services providers such as Singtel and NetLink NBN Trust as potential beneficiaries.

Companies that incorporate AI into their operations, for example ST Engineering , ComfortDelGro and SingPost , may also benefit, the report said.