‘I like Schaeffler – it focuses on precision engineering’
“Other companies of interest include Magna International, Monolithic Power Systems, TE Connectivity and Symbotic”
Key points
- From data centres to AI applications, Chinese companies are growing significantly and expanding rapidly beyond their domestic market. How does this affect competition with other countries, particularly the US?
- Across the AI value chain, in which sectors are the greatest opportunities to be found?
- Which shares do you find most interesting?
Artificial intelligence remains one of the main drivers of the equity markets, but the focus is shifting from digital infrastructure to real-world applications. It is here – in robotics, automation and components – that, according to Derek Yan, senior investment strategist at KraneShares, the most interesting opportunities for investors are emerging.
Global stock markets continue to be driven by AI-fuelled euphoria. Is this a structural paradigm shift, or is there a risk of a correction?
We believe that AI represents a structural paradigm shift, but this does not eliminate the risk of corrections. The first phase centred on digital AI: models, cloud infrastructure and semiconductors. The next phase concerns physical AI, with machines capable of sensing, moving and working in the real world. Valuations can become excessive when expectations outpace earnings, so it is normal to see volatility. But the long-term question is not whether AI is important or not; rather, it is which parts of the value chain will succeed in converting the adoption of this technology into sustainable revenues and margins.
What message do the current quarterly results convey?
Earnings figures show that demand for AI is extending beyond a small group of companies. Cloud service providers, chip manufacturers, data centre providers, software platforms and industrial automation firms all cite AI as a genuine driver of investment. Investors are becoming more selective. Companies must demonstrate not only exposure to AI, but also growth in orders, pricing power, operational leverage or clear monetisation. This is a healthy sign, as it encourages the market to focus on fundamentals.
Volatility in the semiconductor sector has reignited concerns about demand for AI and the sustainability of Big Tech’s capital expenditure. Is the market worried about a delay in AI’s monetisation, or is this simply normal profit-taking?
Both. Following a sharp rise, profit-taking is to be expected. Investors are also wondering when the massive infrastructure investments in AI will translate into cash flows for the rest of the economy. We consider the capital expenditure cycle to be reasonable, as AI requires greater computing power, memory, energy, networks and cooling systems. However, the market may stop rewarding solely those companies that produce components for the ‘brain’ of AI and instead shift its focus to the system as a whole: interconnections, energy, components, sensors, robotics and applications.
From data centres to AI applications, Chinese companies are growing significantly and expanding rapidly beyond the domestic market. How does this affect competition with other countries, particularly the US?
This makes AI a more global and competitive field. The US remains strong in foundational models, cloud platforms and high-end semiconductors. China is increasingly dominant in applied AI, production scale, robotics supply chains and cost-effective implementation. In humanoid robotics and physical AI, this aspect is crucial, as success requires not only software but also motors, sensors, batteries, precision components and manufacturing capacity. We expect competition to intensify, but also to accelerate innovation, reduce costs and expand global adoption
