Mukesh Ambani’s RIL in Spotlight as World’s Biggest Fund Managers Hunt for AI Winners Beyond the US
As the artificial intelligence (AI) frenzy catapults the valuations of tech giants like Nvidia Corp to unprecedented heights, the global investment community is casting its net wider, searching for the next AI frontrunners beyond the familiar territory of the United States. Amidst this search, Reliance Industries Ltd (RIL), steered by the astute billionaire Mukesh Ambani, is emerging as a beacon of innovation and potential in the sprawling, yet untapped markets of the emerging world.
The asset management division of Goldman Sachs Group Inc. is diving deep into the ecosystem of AI, targeting investments in companies that produce essential AI supply-chain components, including cooling systems and power supplies. On a similar quest, JPMorgan Asset Management is leaning towards established electronics manufacturers that are seamlessly transitioning into AI powerhouses. Meanwhile, strategists at Morgan Stanley Investment Management place their bets on enterprises where AI technologies are revolutionizing traditional business models across various non-tech industries.
“AI is perceived as a catalyst for growth in emerging markets,” observes Jitania Kandhari, Deputy Chief Investment Officer at Morgan Stanley Investment Management. The evolving landscape of AI investments is not just confined to direct beneficiaries like the semiconductor industry but is increasingly encompassing diverse sectors leveraging AI to bolster their earnings.
This year, AI-focused stocks have spearheaded a massive $1.9 trillion revival in emerging markets. The lion’s share of this impressive surge is attributed to the semiconductor giants of Taiwan and South Korea, with firms like Taiwan Semiconductor Manufacturing Co. (TSMC) and SK Hynix Inc. registering towering gains.
Despite this remarkable rally, most AI stocks in emerging markets are still more reasonably priced compared to their US counterparts. For instance, while Nvidia boasts a lofty valuation of 35 times its projected earnings, Asian equivalents are found in a more modest bracket of 12 to 19 times earnings projections. Moreover, emerging markets present tantalizing prospects for growth, with analysts forecasting a 61% surge in earnings for technology companies within these markets, a stark contrast to the 20% growth anticipated for their US peers.
The spotlight, for now, shines brightly on those who were already technology trailblazers before the AI boom, such as TSMC and Hon Hai Precision Industry Co. These firms are at the forefront of funds and ETFs focused on emerging markets, attributing to significant outperformance and value growth over the past months.
“The historical suppliers to the tech heavyweights could very well become the giants of tomorrow,” suggests Anuj Arora, Head of Emerging Markets and Asia Pacific equities at JPMorgan Asset Management. “Their early adaptation to technology places them leagues ahead in the AI evolution game.”
The allure of AI is beckoning more investors by the day. Take, for example, Hanmi Semiconductor Co. in Korea, which has seen its value skyrocket by approximately 120% this year, thanks to bullish investment sentiments and increased foreign ownership.
Similarly, in Vietnam, IT service provider FPT Corp. has recorded a 20% uptick in value this year, bolstering the performance of premier emerging market funds in the US.
Moreover, established giants are reigniting investor interest by venturing into AI. In the bustling market of Saudi Arabia, collaborations between local telecom giants and Chinese AI ventures are setting the stage for an AI revolution. India’s very own RIL has catapulted into the AI dialogue with the development of a ChatGPT-style model capable of understanding 22 Indian languages, symbolizing the country’s digital metamorphosis under Ambani’s vision.
“There’s a growing sentiment of creating ‘national champions’ in the AI domain,” notes Luke Barrs, Global Head of Fundamental Equity Client Portfolio Management at Goldman Sachs. He alludes to a strategic shift wherein countries are nurturing homegrown technology firms to become future global leaders in AI.
However, diving into emerging market AI stocks is not devoid of risks. Their strong ties to the US economy mean that any major sell-off in the American AI sector could have wide-reaching consequences. Conversely, a broad market rally could see other sectors catching up, possibly sidelining AI stocks. Despite these potential pitfalls, the intrigue and untapped potential in emerging markets are drawing investors away from overstretched US tech giants.
“In emerging markets, AI is seen as a significant yet under-explored avenue for growth,” Kandhari of Morgan Stanley elucidates. With a vast landscape ripe for innovation, the journey to discovering the next AI titan is fraught with challenges but brimming with opportunities.
