AI is exciting, but Asia’s opportunities are diverse

Gains have been led by a narrow handful of artificial intelligence (AI) supply chain companies – notably those semiconductor and memory companies integral to the build out of data centers. This tight focus ignores a wealth of other growth themes shaping the Asian region.

The ongoing sell-off across Asian technology stocks has highlighted the risks of this concentration. After a period of exceptional share price performance, investors are reassessing how quickly AI-related demand can translate into earnings growth and whether spending levels can continue to rise at the pace that markets had anticipated.

While AI remains a powerful long-term theme, the recent market volatility is a reminder that recent developments highlight the importance of examining a broad range of opportunities that look beyond a handful of technology winners. The AI trade had been strong across global stock markets. Asian companies have been frontline beneficiaries of the vast spending programs from US technology giants such as Alphabet, Meta and Microsoft.¹ Goldman Sachs estimates that spending on AI will be $765 billion in 2026, with the majority spent on compute power and data centers.²

Semiconductors and memory have been at the heart of this spending. Samsung, TSMC and SK Hynix have been among the key beneficiaries of AI-related investment spending across Asia.³ However, after a period of strong market enthusiasm, investors are increasingly assessing valuation levels alongside long-term growth expectations. While the outlook for these companies remains closely tied to ongoing AI adoption, attention is also expanding toward other areas of the Asian market where long-term structural trends may support business growth.

AI adjacent

Some of these themes have a relationship to AI spending but are not as concentrated. Data center growth is helping drive earnings growth for infrastructure companies, for example, but it is not the only source of growth for the sector. As countries become wealthier, there is structural demand for new hospitals, schools, shopping centers, transport links and other key real estate and infrastructure. Companies involved in these buildouts stand to benefit from these long-term investment trends. While such opportunities may benefit from AI investment, these companies’ earnings drivers are broader and more diversified. They may offer more diversified sources of growth if AI infrastructure spending grows more slowly than markets now expect.

Energy security is a similar theme. It was already a powerful force across Asia, particularly in China, as countries look to shake off their dependence on fossil fuels. However, it has become even more pressing because of AI. One of the key bottlenecks for AI is power. Data centers are power hungry: to meet AI demand, countries need plentiful domestic energy or foreign sourcing. It also needs to be consistent and reliable.

Against that backdrop, demand for batteries appears likely to remain supported as companies and data centers seek to improve energy reliability. There is also significant demand for gas turbines across the world as data centers and gas plants look to meet energy and reliability requirements. Much of the supply chain for these turbines can be found in Asia with companies supported by long-term demand trends.

The path to electrification and energy independence also requires the re-engineering of grids across the world. They need to have sufficient capacity to support increasing electricity loads. Grid systems may be old and, in many cases, not fit for purpose. This is another source of opportunity for investors as global grid infrastructure needs to be upgraded and maintained.

Defense

Some of Asia’s opportunities have little direct connection to AI, and defense is one example. Defense has been an important theme across global financial markets as it has become clear that geopolitical uncertainty is here to stay. Historic alliances are breaking down, forcing governments to spend more on protecting themselves. Conflicts in the Middle East and Ukraine have driven up military spending by governments across the world.

This has been a notable phenomenon in Europe and the US but is also evident in Asia with military spending hitting $681 billion in 2025. China is now the world’s second largest military spender (after the US) and increased its military spending by 7.4% to $336 billion last year.⁴

Asian companies are beneficiaries of both domestic and international military spending. For example, some key parts of the shipbuilding supply chain are in Asia. Korean and Philippine companies are seeing significant demand from US defense companies. We believe this represents another area drawing attention from investors evaluating long-term structural trends.

Growing middle class

As Asian countries become wealthier, a growing middle class is changing consumption patterns across the region. This has been a long-running theme but has been less evident more recently as higher inflation and the wobbly Chinese property market have dented consumer confidence. However, in the long-term, we believe it is a well-supported trend – Asian countries are still getting wealthier, the middle class is still growing and with it, demand for new goods and services.

Consumer premiumization continues to be a clear phenomenon, as consumers have moved from generic products to branded goods. There has also been a move to certain domestic brands, particularly in China, rather than international luxury brands.

It is also possible to take exposure to the growth of the middle class through the financial services sector. As households grow wealthier, they tend to take steps to protect their wealth – life insurance, for example, or long-term savings. Demographic and wealth accumulation trends may support continued growth in China, India, and other ASEAN markets over the longer term and with that, we believe may warrant continued attention.