BofA Securities advises global investors to shift focus from Asia's dominant AI hardware 'titans' to mid-cap 'battleground' sectors offering stronger growth amid competition. The report maps over 330 Asian AI stocks across 22 subsectors worth nearly US$6 trillion. It highlights opportunities in under-covered areas with rising stars and pair-trading potential.
BofA Securities' report, published on December 4, urges investors to move away from Asia's dominant AI hardware 'titans' toward 'battleground' sectors with greater growth potential amid rising competition. Led by Winnie Wu, head of Asia-Pacific equity strategy and co-head of China equity research at BofA Global Research, the analysis covers more than 330 Asian stocks across 22 subsectors in the AI technology layer, representing a market capitalization of nearly US$6 trillion.
Semiconductor fabrication and memory chips form the two largest sectors by market cap and are considered 'core holdings.' However, the analysts advise: 'But we advise investors to seek alpha in the “battleground sectors” with more mid-cap stocks.' These battleground sectors are defined as those featuring numerous mid- and small-cap stocks, abundant with rising stars, under-covered companies, and pair-trading opportunities.
The top five battleground sectors with relatively high profitability are semiconductor equipment, printed circuit board/copper clad laminate (PCB/CCL), optical module/co-packed optics (CPO), microprocessor unit/system on chip, and outsourced semiconductor assembly and testing. Semiconductor equipment alone encompasses over 50 Asian stocks with a combined market cap close to US$500 billion, benefiting from aggressive capital expenditures by advanced chip fabs, per the report.
As AI competition intensifies, these mid-cap areas present compelling investment prospects, particularly among Chinese and Taiwanese stocks.
