JP Morgan stated that the recent decline in Asian technology stocks does not signal the end of the artificial intelligence (AI) investment cycle, with semiconductor equipment companies positioned to benefit most. According to CNBC on the 5th (local time), the bank said investors are overly concerned about AI investment sustainability. JP Morgan explained that the recent 25-30% decline in Asian tech stocks and the Philadelphia Semiconductor Index represents only the third major correction since the AI-led rally began in late 2022, with no fundamental indicators pointing to meaningful AI weakness over the next 6-12 months. The bank emphasized that core foundations of the current cycle remain solid, citing continuous improvements in cutting-edge AI models every few months and strong AI inference demand across both proprietary and open-source models.
JP Morgan Sees Solid AI Investment Cycle Fundamentals
JP Morgan highlighted that the fundamental underpinnings of the current AI investment cycle remain robust. The bank noted that cutting-edge AI models continue to improve consistently every few months, and AI inference demand shows strength across both self-developed and open-source models. The bank also assessed that profitability across the AI ecosystem is improving as agentic AI gains attention.
Hyperscalers Expected to Maintain AI Spending Through 2027
While the market has raised questions about whether hyperscalers can maintain aggressive AI investment levels, JP Morgan projected they will not reduce spending. The bank stated it does not expect hyperscalers to pull back from AI computing investments even in 2027, and they are more likely to leverage equity and debt markets to expand AI infrastructure. JP Morgan also pointed out that the market is excessively pricing in recession risks, noting that the opposite scenario is more likely due to overall upward revisions in corporate earnings outlooks and continued increases in AI-related capital expenditures.
Semiconductor Equipment Manufacturers Viewed as Most Favorable
JP Morgan assessed semiconductor equipment companies as the most promising sector within the semiconductor industry. The bank projected that semiconductor equipment manufacturers will be in the most advantageous position over the next 12 months as wafer fabrication equipment investment accelerates.
Memory Sector Shows Solid Fundamentals with Supply Concerns
Regarding the memory sector, JP Morgan projected that while memory supply-demand fundamentals are solid, supply will significantly outpace demand over the next 2-3 years. The bank noted that NVIDIA and AMD have shown moves to reduce memory usage in future AI products. JP Morgan analyzed that the market's prevailing perception that AI-driven memory demand is price-inelastic and different from the past has weakened. The bank's analysts stated that while fundamentals in the memory segment are solid, there are issues with the market's overall outlook, expecting the memory market may rebound over the next 6 months but will find it difficult to recover the highs recorded in May.
FAQ
What did JP Morgan say about the recent decline in Asian tech stocks?
JP Morgan stated that the recent 25-30% decline in Asian tech stocks and the Philadelphia Semiconductor Index represents only the third major correction since the AI-led rally began in late 2022, and does not signal the end of the AI investment cycle.
Which semiconductor sector does JP Morgan view most favorably?
JP Morgan assessed semiconductor equipment manufacturers as the most promising sector, projecting they will be in the most advantageous position over the next 12 months as wafer fabrication equipment investment accelerates.
