How to ride the tech tiger in emerging markets

Emerging-market investors should stay exposed to the AI hardware cycle while selectively taking profits and diversifying beyond the three dominant semiconductor stocks.

• TSMC, Samsung Electronics and SK Hynix have driven emerging-market returns, making the benchmark increasingly dependent on a narrow technology trade.
• Amazon, Microsoft, Google and Meta are expected to spend nearly US$700 billion on capital expenditure in 2026, but the uncertain economics of AI models create risks for hyperscalers and platform providers.
• AI hardware suppliers are already generating revenue, while long-term purchase commitments across hyperscalers run into the trillions of US dollars; these commitments improve earnings visibility but do not remove the risk of overcapacity.
• The semiconductor cycle is expected to move from exceptional profitability under capacity constraints, to lower but elevated profitability as supply expands, and eventually to normalised margins on a larger revenue base.
• Samsung Electronics has announced roughly US$80 billion in shareholder returns, while Samsung and SK Hynix appear to be targeting shareholder distributions equivalent to 50% of free cash flow alongside investment in capacity and employees.
• More than 90% of active emerging-market funds own TSMC, over 80% own Samsung Electronics and over 70% own SK Hynix, making these stocks closer to market beta than differentiated sources of alpha.

Takeaway: Active managers should retain exposure while capital expenditure and hyperscaler financing support the cycle, but manage position sizes, take profits selectively and diversify technology exposure before concentration and overcapacity risks force a sharper exit.