Asia investors demand AI revenue proof as focus shifts from exposure to earnings: BofA

Investors in Asia are now seeking concrete proof that artificial intelligence (AI) can generate revenue and earnings, moving past simply looking for exposure to the technology, according to Chris Oberoi, head of Asia-Pacific research at Bank of America (BofA) Global Research. "The key question now is whether AI adds to productivity and generates profits," Oberoi explained.

"And the evidence is overwhelmingly positive." Ahead of a meeting between President Xi Jinping of China and US President Donald Trump in Washington on Thursday, Oberoi shared that conversations with clients about AI have evolved over the past year. Rather than simply wanting to invest in AI, investors are now delving into specifics such as models, semiconductors, memory components, and whether companies can turn their AI investments into tangible revenue.

This shift in focus is evident in BofA's September Asia Fund Manager Survey, which polled 190 investors managing $512 billion in assets. Four out of five respondents indicated that demonstrable, revenue-generating AI would significantly boost their confidence in adding AI-related stocks to their portfolios. Of those surveyed, 55 percent believed AI's positive impact had already been adequately reflected in equity valuations, an increase from 37 percent in August.

Despite the growing emphasis on AI's monetisation potential, BofA still anticipates ongoing capital expenditure (capex) in the sector. Taiwan and Japan were identified as the top Asia-Pacific markets to benefit from the next AI cycle, with Taiwan standing out for its advanced chip, packaging, and server industries. South Korea's advantage lies in memory demand, while Japan offers exposure to industrial automation and robotics.

China, meanwhile, plays a crucial role in the global AI chain while simultaneously investing in its own infrastructure. "China is essential in the supply chain for the global buildout of AI," Oberoi noted, "but they are also heavily investing internally." The survey identified a "smile curve" in AI investments, with semiconductors and memory at one end and AI models like those from OpenAI, Anthropic, ChatGPT, DeepSeek, and Alibaba Group at the other.

Robotics and industrial applications faced more intense competition when it came to monetisation. BofA expects some progress on trade during the upcoming summit between President Xi and President Trump, potentially including tariff reductions in sectors like agriculture or aerospace, as well as the extension of the existing trade truce.

However, Oberoi cautioned that the meeting is unlikely to fundamentally change the ongoing technology rivalry between the two nations. Rising interest rates pose a potential tail risk for Asian markets, according to Oberoi. The US Federal Reserve recently raised its benchmark interest rate by a quarter of a percentage point, marking its first increase in over three years.

BofA forecasts two more such rate hikes before the end of the year. The Bank of Japan raised its policy rate to 1.25 percent, its highest level in 31 years, as it continues its shift away from ultra-loose monetary policy. BofA expects the Bank of Japan to eventually reach a 2 percent rate and forecasts the yen at 149 to the US dollar by the end of 2026, strengthening from 157 on Monday.

As always, markets tend to reflect available information to the best of their ability, Oberoi concluded. "Fundamentals, such as revenues and earnings, remain the cornerstone for investors."