AI and memory not a classic bubble, but future returns uncertain - strategist

Investing.com -- Artificial intelligence and surging demand for memory chips have rapidly shifted emerging-market leadership toward Taiwan and South Korea, while surging company valuations have raised the question of whether the rally is fundamentally justified or increasingly speculative.

Andrew Dalrymple, Investment Director at Aubrey Capital Management, argues the answer lies in earnings. While he sees clear signs of excess, including leveraged ETFs tied to Samsung Electronics and SK Hynix, he says the underlying memory cycle remains unusually strong.

“Earnings are growing fast on surging memory demand,” Dalrymple said, while new semiconductor capacity remains expensive and slow to build.

That could make the current cycle more durable than previous memory booms, which were largely driven by shorter PC, smartphone and gaming hardware cycles. AI infrastructure requires far greater capital investment and longer lead times, making it harder for supply to quickly catch up with demand.

Valuations also remain relatively modest despite the rally. Dalrymple notes that Samsung trades at roughly six times this year’s earnings and around four times next year’s, with SK Hynix on similar multiples.

Still, he cautions that strong fundamentals do not guarantee recent returns can continue. “The challenge for investors is separating temporary momentum from sustainable earnings growth,” Dalrymple said.

For now, AI infrastructure and memory remain central to the emerging-market story, but the next phase will depend increasingly on whether earnings continue to justify the sector’s sharply increased market weight.

Original Article

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