Beyond the Big Three: Mapping Asia's AI hardware rally

Today, around 30% of the MSCI EM Index is accounted for by just three stocks: TSMC¹ (14.5% index weight; USD 1.97 trillion market cap), Samsung Electronics (9.3%; USD 1.3 trillion) and SK Hynix (6.8%; USD 1.1 trillion), up from a combined index weight of 12% just three years ago. TSMC’s large index weight creates a dilemma for active UCITS-regulated EM funds, where single-stock exposure is typically capped at 10%, leading to a structural underweight in the semiconductor giant.

Beyond TSMC, hundreds of specialized Taiwanese and Korean technology companies have enjoyed impressive share price gains. Figure 1 shows the year-to-date returns of the Taiwanese and Korean tech stocks in our investable universe. For active stock pickers, the opportunity set extends far beyond the most obvious winners, but the characteristics of these companies vary widely. They operate across different parts of the AI value chain, each with its own supply-demand dynamics and competitive landscape, resulting in distinct profitability and valuation profiles. The opportunities are abundant, but after such a powerful rally, investors must remain disciplined on fundamentals, valuations and earnings expectations.

To map the vast Asian hardware ecosystem and the phenomenal returns many of these stocks have delivered – and in many cases have resulted in rich valuations – we start by categorizing ten steps of the AI infrastructure value chain, from chip design to server building. Figure 2 outlines and explains the ten steps we have identified.² We focus here on Taiwanese and Korean stocks, given the dominance of Taiwanese names in the current AI infrastructure boom. ³

Figure 3 shows the market capitalization, returns and valuations of the main stocks in each category. The AI rally has been broad, although return dispersion has also been high, including when looking at five-year returns as shown below.

As the saying goes, a picture is worth a thousand words. Figure 4 illustrates the five-year share price performance of the three largest stocks in each category and highlights the breadth of the Asian technology rally. Performance, however, has varied widely across segments. In the PCB/server board category, some stocks have risen more than 20-fold over the past five years, while ODM server manufacturers have posted impressive gains of three to seven times. The timing of the rally has also differed. Server assemblers such as Quanta and Wiwynn, for example, captured most of their gains before 2026, ahead of many other beneficiaries of the AI infrastructure buildout.

The Asian technology rally is approaching an inflection point, where structural realities and market discipline are beginning to outweigh narrative. The bottlenecks are real and persistent – constraints in advanced packaging (notably CoWoS), specialized substrates and thermal cooling remain binding, effectively anchoring supply as hyperscaler capex continues to expand. This supports pricing power and provides clear earnings visibility across these midstream hardware segments.

What is shifting, however, is market behavior. The first phase of the rally was broad-based and momentum-driven; the next phase is likely to be far more selective. With valuations pricing in near-perfect execution, particularly across Taiwanese hardware, dispersion is set to increase meaningfully. Alpha will be driven by quality: companies with durable cash-flow generation, strong balance sheets, and genuine pricing power to absorb rising input costs and capital intensity.

At the same time, the global technology stack is becoming more fragmented. While Taiwan and Korea remain central to frontier AI infrastructure, particularly in training, China is rapidly building a parallel and increasingly self-reliant ecosystem. As the industry shifts toward inference, localized architectures and custom ASICs are gaining traction, while downstream Chinese players are establishing a structurally relevant competitive counterweight.

In this environment, passive exposure becomes increasingly constrained, both by index concentration and regulatory limits. A more effective approach is inherently active; combining systematic signals, such as earnings revisions and momentum, with fundamental oversight to navigate geopolitics, supply chain dynamics and corporate complexity. This allows for disciplined positioning, including selective rotation away from extended Taiwanese exposures into high-quality Korean or regional names where valuations offer a more attractive margin of safety.

Although both our quantitative and fundamental strategies maintain mostly neutral exposure to the Asian hardware sector, both styles have continued to deliver strong results throughout the AI-driven rally through successful active country allocation and/or bottom-up stock picking. This demonstrates that performance is not dependent on a single technology trend, but is driven by the ability to identify opportunities across the full emerging markets universe.

We pursue this opportunity in different yet complementary ways. Our quantitative EM strategies focus on bottom-up, rules-based stock selection through hundreds of small active positions, while our fundamental EM strategies combine top-down country analysis with high-conviction stock selection. Through a culture of close collaboration, we leverage each team’s strengths, making Robeco a leading EM investment platform with long and proven track records of adding value across a wide range of market environments.