J.P. Morgan says Asia tech sell-off hasn’t ended AI cycle

The recent 25% to 30% correction in Asian technology stocks does not mark the end of the artificial intelligence investment cycle, J.P. Morgan JPMorgan Chase & Co. ↘ 0.82% said in a research note published Wednesday, arguing that investors have become overly concerned about the sustainability of AI spending despite little evidence of a fundamental slowdown.

The reassurance came as Asian markets fell sharply on Thursday, with South Korea's Kospi shedding more than 4% and Japan's Nikkei 225 losing around 1.6%, led lower by chipmakers SK Hynix ↘ 4.97% and Samsung Electronics after disappointing earnings from U.S. storage companies revived concerns over AI profitability.bssnews+1

AI Fundamentals Remain Intact

"Stepping away from the share price moves, we do not see any fundamental indicators that signal meaningful weakness in the next 6-12 months," the bank's analysts wrote. J.P. Morgan noted that the correction in Asian tech stocks and the Philadelphia Semiconductor Index represents the third major drawdown since the AI-driven upcycle began in late 2022.cnbc+1

The bank said the core drivers of the current cycle remain intact, with frontier AI models continuing to improve every few months and demand for AI inference remaining strong across both proprietary and open-source models. It also pointed to improving profitability across the AI ecosystem as agentic AI gains traction.cnbc

Hyperscalers Unlikely to Pull Back

While investors have increasingly questioned whether cloud providers can sustain their aggressive AI spending, J.P. Morgan said it does not expect any pullback. "We do not anticipate any of the hyperscalers stepping back on AI compute investments in 2027," the bank wrote, adding that these companies are likely to tap equity and debt markets to finance further AI infrastructure expansion.news.futunn+1

The market is already pricing in a downturn that is unlikely to materialize, the analysts argued, saying that broader earnings upgrades and continued increases in AI-related capital expenditure represent the more probable outcome.cnbc

Supply Chain Outlook

Within the semiconductor supply chain, J.P. Morgan identified semiconductor equipment manufacturers as the "best-positioned sub-sector" over the next 12 months as wafer fab equipment spending accelerates. The bank also expects packaging and testing to see sharp growth as 2.5D packaging goes mainstream and TSMC Taiwan Semiconductor Manufacturing Company Limited ↗ 1.01% begins its 3D packaging investment cycle.cnbc

On memory, the bank struck a more cautious tone, noting that recent moves by Nvidia ↘ 0.10% and AMD Advanced Micro Devices, Inc. ↗ 1.50% to lower memory content in future AI products have weakened the narrative that AI-driven memory demand is price-inelastic. Over the longer term, J.P. Morgan expects power availability to overtake chips as the main constraint on AI compute infrastructure within 18 to 24 months.cnbc