Investors wary of the surging interest in artificial intelligence (AI) stocks due to concerns of overvaluation might find a compelling reason to stay invested: dividends. A leading fund manager highlights that, unlike their U.S. counterparts, tech companies in Asia not only boast net cash balance sheets but also share profits with investors through dividends, with expectations of increased payouts as earnings grow.
Sam Konrad, co-manager of the Jupiter Asian Income strategy, points out that the fund has significantly increased its technology holdings to a record 32%, making it the top allocation. This strategy includes major investments in Asia's leading chipmakers, Taiwan Semiconductor Manufacturing Co. (TSMC, Financial) and Samsung Electronics Co., amidst the AI boom that has seen tech shares in the region rally, albeit at a slower pace compared to their U.S. peers like Nvidia Corp.
Despite the slower rally, Asian tech stocks remain attractive when compared to U.S. tech stocks or historical data, according to Konrad. The Jupiter Asian Income strategy, worth $2 billion, has outperformed 97% of its peers over the past five years. Notably, TSMC is trading at about 19 times estimated earnings for the next year, which aligns with its five-year average. In contrast, the Philadelphia Semiconductor Index is at 27 times. MediaTek Inc., the largest holding in Konrad’s portfolio as of February, boasts a dividend yield of 5.2% for the 2024 fiscal year, significantly higher than Nvidia’s 0.02%.
The growth in dividends is also more pronounced in Asia. Stocks in the Bloomberg Asia Pacific Semiconductors Index are expected to see nearly a 30% increase in dividends over the next 12 months, compared to a 20% rise for the Philadelphia chip gauge. Konrad prefers investing in "global leaders" from Asia that have surpassed U.S. companies in technology and capabilities, emphasizing the essential role these companies play as suppliers and contractors for U.S. tech giants, regardless of which one develops the next major product or service.
