Asian Investors Discover Hidden Value in AI Stocks

Asian investors are showing interest in the rising artificial intelligence (AI) stocks, and a top fund manager is advocating for ongoing investment due to the attractive dividend prospects. Jupiter’s Asia Fund is placing its bets on AI stocks for their dividend potential with a record 32% exposure to the tech sector despite low valuations and growth opportunities.

Sam Konrad, investment manager of the Jupiter Asian Income strategy, emphasizes Asian IT companies’ dividend-paying capacity compared to their United States counterparts. According to Konrad, these companies not only have a net cash balance sheet but also pay dividends, which are likely to rise alongside their revenues in the coming years. This methodology has prompted the Jupiter Asian Income strategy to allocate a record portion to technology equities, including major purchases in leading chipmakers such as Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics Co.

Positive Dividend Prospects for Asian IT Companies

Despite the AI-driven rally, Asian tech companies still offer comparatively cheap valuations compared to their American counterparts. For instance, TSMC’s valuation is about 19 times the estimated earnings for the next year, aligning with its five-year average. In contrast, the Philadelphia Semiconductor Index values are 27 times.

MediaTek Inc., a major holding in Konrad’s portfolio, boasts a dividend yield of 5.2% for the 2024 fiscal year, significantly higher than Nvidia’s 0.02%. Furthermore, predictions indicate that dividends for equities in the Bloomberg Asia Pacific Semiconductors Index will rise by about 30% over the next year, exceeding the Philadelphia chip gauge’s 20% growth rate.

When we look at the valuations of the Asian tech stocks that we own and we compare them to US tech stocks or even to history, they are really attractive

Sam Konrad, Investment Manager at Jupiter Asset Management Ltd. 

The $2 billion Jupiter Asian Income strategy beat 97% of its peers over the past five years.

Skepticism and Opportunities in AI Rally

While the rapid ascent of AI stocks has drawn comparisons to the dot-com bubble, fund managers like Tony Wang of the T Rowe Price Science & Technology Fund argue that the sector is not in a bubble. Wang points to the real corporate profits backing the rally, with Nvidia, for example, trading at about 35 times forward earnings. Meanwhile, despite a nod from Nvidia, Samsung Electronics Co. faces skepticism, with concerns about its ability to compete in the HBM memory market against SK Hynix Inc., which has already established a strong partnership with Nvidia.