Asian technology stocks could see an additional 15%-20% rally this year, primarily driven by the immense and relentless momentum in the Artificial Intelligence (AI) sector. This is according to an optimistic and comprehensive report by senior analysts at JPMorgan Chase & Co., including Gokul Hariharan, who anticipate that the AI sector will continue to lead the current upcycle. Their assessment is based on significant growth in data center capital expenditures (CapEx) in 2025, and increasing confidence in robust growth extending into 2026. The analysts emphasize in their report that they are not advising any “meaningful rotation” away from AI stocks in the next three months; rather, they prefer to “stick with the winners” within the sector. This is a clear call for investors to remain focused on the leaders of the AI market, largely disregarding short-term volatility.

AI stocks in Asia, particularly semiconductor companies, are rapidly becoming undeniable key drivers of the region’s equity markets. These gains are propelled not only by global demand but also by strong local appetite for automation, generative technologies, and digital innovation in many Asian countries. A Bloomberg regional semiconductor index, a crucial barometer for the industry’s health, has risen over 12% this year. This increase significantly outperforms a broader Asian equity gauge, indicating that the semiconductor sector, especially that serving the AI domain, is attracting the majority of capital and interest. The robust and sustained demand for advanced memory and processing chips for AI solutions, from large technology providers and cloud giants, is expected to continue driving further market gains. This is a positive feedback loop where increased investment in AI infrastructure fuels demand for chips, which in turn pushes up the stock prices of manufacturers, strengthening Asia’s technological ecosystem.

Identifying the Winners: Semiconductors Lead the Way, AI Development Creates Opportunities

JPMorgan explicitly identified the technology and semiconductor sectors in the region as among its top investment picks. Analysts note that companies with advanced manufacturing capabilities, particularly those involved in the development and production of chips essential for AI applications, will benefit from unprecedented demand. These companies, at the very heart of the artificial intelligence revolution, are expected to continue their upward trend consistently over the next 12 months. The assumption is that demand for these products and services poses no problem at all, and that company earnings will continue to be revised upwards, providing further tailwinds for stock prices. The competitive advantage of these companies, based on innovation, advanced manufacturing capabilities, and control over the critical AI supply chain, makes them particularly attractive to the bank.

Furthermore, analysts note that beyond the impressive performance of specific companies, the Asian technology sector as a whole is benefiting from strong capital flows and increased attention from global investors seeking exposure to AI growth. Asian countries, such as Taiwan and South Korea, have become global hubs for chip manufacturing and advanced technology development, and are perceived as crucial for the future of artificial intelligence. Increased governmental and private investments in digital infrastructure, research and development, and AI talent development are creating a supportive ecosystem that further strengthens the position of these companies. Capital markets in Asia are demonstrating increasing maturity, with active stock exchanges and the ability to raise significant capital, contributing to the stability and growth potential of the regional technology sector. The transformation undergoing the technology sector stems from a deep understanding of how AI is changing the value creation model, from basic infrastructure to advanced applications serving a wide range of industries and consumers.

A Cautious Outlook for Non-AI Sectors: Challenges Amidst Moderating Markets

In contrast to the broad optimism regarding the AI sector, JPMorgan adopts a more cautious, even pessimistic, stance towards sectors not directly related to artificial intelligence, especially those operating in traditional consumer goods. This primarily includes manufacturers of personal computers, smartphones, and other consumer devices. The report states that downward earnings revisions may continue in these sectors, as the impact of consumption subsidies implemented in China during certain periods is fading. This implies that these companies will have to contend with moderating demand, coupled with increasing competition and the need to find new growth engines that are not dependent on external incentives.

This caution from the bank underscores its central thesis regarding the concentration of growth in sectors driven by AI innovation. It appears that investor capital and interest are largely flowing into these “hot” sectors, at the expense of more traditional sectors that may face ongoing demand and profitability challenges. The implications of changes in global consumption habits, as well as the shift in consumer and company attention to innovative AI solutions, directly impact the profit margins of traditional hardware manufacturers. These sectors will need to find ways to integrate with the AI trend, or develop other competitive advantages to maintain relevance and attract investment. Simultaneously, AI markets in Asia are expected to continue experiencing rapid growth, supported by both local innovation and global collaborations, creating a widening gap between the performance of different sectors within the Asian technology market.

The Future of AI in Asia: Immense Potential Amidst Geopolitical Risks

The shift of AI from infrastructure to applications is another cornerstone of JPMorgan’s investment thesis. While many American technology giants dominate basic AI hardware (such as chips and data centers), Asian companies, particularly Chinese ones, are leading in applied AI, such as chatbots, autonomous driving, and customized enterprise solutions. This division of capabilities creates unique opportunities for companies in the region. Furthermore, valuation gaps are gradually closing: Asian technology stocks trade at a discount compared to their U.S. counterparts, despite similar AI adoption rates. These valuation gaps represent an opportunity for investors seeking value in markets where quality AI companies have not yet been fully priced.

However, despite the optimism, there are several significant risks that could affect the development of JPMorgan’s thesis. Geopolitical difficulties, particularly trade tensions between the U.S. and China, could disrupt the supply of critical chips and components, directly impacting cloud providers and their ability to expand AI services. Profit margin pressures, stemming for example from reliance on third-party computing providers (especially GPUs), could limit companies’ ability to increase profitability if the costs of these services continue to rise. Finally, there is always the risk of “AI hype versus reality”: overvaluation of AI stocks could lead to sharp price corrections if the monetization of AI technologies does not progress at the pace the market expects, or if profitability does not align with the high expectations that have accumulated in the market.

In conclusion, JPMorgan’s analysis presents a complex yet optimistic picture for the technology sector in Asia. The main indices in the sector, driven by AI innovation, are expected to continue demonstrating strong performance. While broader technology markets face macroeconomic uncertainty, the AI sector offers significant upside potential, thanks to the strategic positioning and financial strength of its leading companies. Investors interested in leveraging the next phase of AI growth should adopt a selective approach, examining companies with a stable business model, positive cash flow, and a clear competitive advantage in the AI domain. In a world where AI is no longer a “maybe” but a “now,” the Asian technology sector is proving itself to be a key player in this revolution.