Leading Taiwan Tech Fund Believes AI Rally Has More Upside Potential
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Rising Demand for AI Boosts Taiwan Tech Fund's Performance
Despite skepticism surrounding sector valuations, one of Taiwan's standout tech funds anticipates that sustained demand for artificial intelligence (AI) will continue to drive growth in the semiconductor cycle. The NT$1.37 billion UPAMC New Asian Technology and Energy Fund has surged 45% this year, outperforming 98% of its peers. Its portfolio includes heavyweights like Nvidia Corp., Taiwan Semiconductor Manufacturing Co. (TSMC), and Micron Technology Inc.
Valuation Concerns Amidst Tech Surge
Fund manager Sam Kuo dismisses fears of a looming tech bubble, asserting that while some stock valuations have seen massive hikes, earnings are expected to catch up. The sector has faced headwinds from deteriorating US-China relations and a recent shift away from large-cap stocks. Additionally, the potential re-election of Donald Trump adds to geopolitical and trade uncertainties.
Shift in Investment Strategy
Owing to these tensions, Kuo has redirected investments from China to Taiwan and Japan, focusing on higher-quality firms connected to AI rather than consumer electronics. The fund remains heavily allocated to Asia, with 60% of its holdings in the region.
Performance and Forecasts
Despite the robust performance of chip stocks, some experts warn of overheating. Nvidia, for instance, received a downgrade from New Street Research after a sharp rally. The company currently trades at a price-to-earnings ratio of 71 times. Kuo, however, downplays valuation worries, emphasizing that tech profits are poised to grow, which will normalize the valuations over time.
TSMC recently surpassed earnings expectations and raised its 2024 revenue outlook, confident in the long-term AI spending boom. Other major players like Tokyo Electron Ltd. are also set to report soon.
Diversifying Beyond Semiconductors
Kuo is also eyeing industrial firms that provide essential services to the tech sector. One notable investment is in Meidensha Corp., a manufacturer of light machinery, including power generation and water treatment systems. He sees opportunities in grid equipment in Korea and Japan, addressing the electricity shortage issue exacerbated by the AI surge.
AI: A Safe Haven Amid Political Uncertainty
As political news dominates headlines, Kuo asserts that AI's growth remains unaffected regardless of the US election outcome, reinforcing it as a resilient investment area.
