Investors Rotate into Asian AI Underdogs as Big Tech Shares Slide
Money is moving. While mega-cap tech stocks wobble, a quiet but aggressive rotation is underway—straight into Asia's AI underdogs.
The Shift is On
Forget the usual suspects. Portfolio managers and hedge funds are hunting for the next wave of AI growth, and their sights are set east. It's a classic risk-reward pivot: away from overheated, regulation-heavy giants and toward nimble, specialized players in Seoul, Tokyo, and Singapore.
Why the Underdogs?
These aren't just copycats. We're talking about firms pioneering niche applications—from semiconductor design automation to bespoke large language models for non-Latin scripts. They're operating with different cost structures, different regulatory landscapes, and, crucially, different growth trajectories. The narrative? Pure alpha potential while the West deals with antitrust headaches and valuation fatigue.
The Cynical Take
Let's be real—this is finance's favorite game: talking about 'long-term disruptive potential' while executing short-term momentum trades. Everyone wants to be the genius who spotted the next big thing before the herd, even if it means chasing a theme that's hotter than a GPU cluster. But sometimes, the herd is right about the direction, if not the timing.
The big tech slide isn't a catastrophe; it's a catalyst. It's forcing capital out of comfortable positions and into the spaces where real, scrappy innovation is happening. The smart money isn't waiting for a bounce back in the usual names—it's already placing bets on who builds the future.
New winners emerge in Asian markets
Instead of leaving the AI trade entirely, investors are picking different stocks. Taiwan’s MediaTek, a chip designer partnering with Alphabet, posted its strongest week since 2002 after the Gemini launch. South Korea’s IsuPetasys Co., which makes circuit boards for Alphabet, jumped 18% to a record high last week.
These moves show that Asian suppliers can profit regardless of which American tech giant leads the supply chain.
“Around 90% of the hardware manufactured globally, which is fitting into data centers, servers, testing environment, anything you need from manufacturing the chips, memory cards, or even testing, cooling systems, all comes from Taiwan, Korea, Japan, Thailand, and even mainland China,” said Egon Vavrek, head of emerging markets and Asia equities at BlackRock Inc.
Despite the AI competition between the US and China, their supply chains remain connected. Zhongji, an optical transceiver Maker based in Shandong, gets 22% of its revenue from Alphabet and 11% from Amazon. Its shares climbed 11% last week to a new high.
Established leaders maintain strong positions
The established leaders aren’t finished yet. TSMC has the best chipmaking technology and manufactures for all major players. Its shares are headed for a third straight year of gains, pushing its value above $1 trillion.
SK Hynix and Samsung Electronics Co. control over 90% of the global market for high-bandwidth memory, another key AI component, according to Macquarie Group Ltd. research.
SK Hynix shares have more than tripled this year, and negative bets against the stock have decreased. Short interest dropped to 0.6% of free float from over 3% in May, based on S&P Global Inc. data seen by Bloomberg.
But investors keep hunting for fresh ideas, driven by news, worries about expensive stocks, or limits on what they can hold.
“AI remains front and center of tech investors’ minds, even after three years into the theme,” said Timothy Fung, head of Asia equity strategy at JPMorgan Private Bank in Hong Kong. “Opportunities are evolving across the AI supply chain, but remain linked to physical infrastructure.”
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