Asian Chipmakers to Catch Up With US Counterparts, Says JPMorgan Fund Manager

A JPMorgan Asset Management-run fund worth $1.4 billion, is holding a positive outlook for Asia’s semiconductor supply-chain stocks, anticipating their potential to match the rapidly rising US rivals.

Valuation of Asian semiconductor manufacturers to rise in 2H 2023

One of the JPM Asia Pacific Equity Fund co-managers, Oliver Cox, foresees an upcoming surge in artificial intelligence (AI)-related investments for Asian enterprises. This development is expected to result in augmented valuations during the latter part of 2023. Cox believes that AI has considerable potential to significantly influence regional earnings, and this trend of increased AI-driven orders is likely to persist well into 2024.

Cox stated in an interview that this is the anticipated course of event based on insights from previous cycles. The JPM Asia Pacific Equity Fund has performed exceptionally this year out doing rivals by 86%. 

The optimistic sales projection made by Nvidia Corp. in May ignited a worldwide enthusiasm for artificial intelligence (AI) related products, and this positive trend continues to thrive. The Santa Clara based chipmaker predicted that it expects sales of around $11 billion for the quarter ending July despite analysts holding that the figure could be around $7.2 billion. 

Interestingly, brokerage firms that have been skeptical have started touting the potential of chip stocks connected to AI, as evidenced by Morgan Stanley’s recent upgrades of semiconductor companies in South Korea, Greater China, and Japan. The Chinese sector received an upgrade from a US broker, which is now considered attractive rather than in-line. Additionally, Morgan Stanley raised the price targets for Korea’s SK Hynix Inc. and Samsung Electronics Co. On the other hand, the Japanese chip sector received a lift from in-line to attractive with Disco Corp seeing a change to overweight.

Asian chipmakers on the rise as AI-related ventures grow  

Nonetheless, the change has predominantly favored US companies until now, given that numerous Asian enterprises have experienced a decline in profits due to a slump in electronics demand. Only recently are they witnessing an encouraging surge in AI-related ventures, as highlighted by Cox. Recently, Taiwan Semiconductor Manufacturing Co. faced a setback, with its shares plunging by up to 3.8% on Friday, attributed to a reduction in its annual revenue forecast.

In the current year, the Bloomberg Asia Pacific Semiconductors Index has demonstrated a modest growth of approximately 23%, which is about half of the advancement observed in its US counterpart. Furthermore, the 12-month forward price-to-earnings ratio for the Index is trailing behind the Philadelphia Semiconductor Index by nearly five points, representing the most significant margin since 2017.

In addition to possessing appealing valuations, Korean suppliers stand to gain from price upswings due to anticipated “DRAM shortages in 2024” fueled by the rising demand for high bandwidth memory driven by AI technologies, as highlighted by Cox.  Furthermore, the Hong Kong-based manager is actively considering investments in cutting-edge semiconductor packaging and testing companies in Taiwan and Japan, for another technology-focused fund he runs.

Forecasts of future earnings for the Asian semiconductor benchmark have climbed by 15% since their lowest point in 2023, which is almost twice the increase seen in the US benchmark.

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