Emerging Markets Outperform Developed Economies on AI Hardware Demand

Emerging market equities have generated returns approximately double those of the MSCI World index in US dollar terms since the start of 2025. This performance marks a sharp reversal from a decade of underperformance that began in 2010. The recent outperformance is not broad-based but concentrated in specific technology sectors that supply critical components for the global artificial intelligence buildout.

According to data cited by GN stocks/chips, the gap between emerging and developed market returns widened further in the first half of 2026. Emerging market equities rose by 24 percent during this period, while developed market equities gained only 10 percent. This divergence suggests a structural shift in capital allocation toward regions producing advanced semiconductors and AI infrastructure.

Semiconductor Stocks Lead Performance

Technology hardware and semiconductor stocks have been the primary drivers of this outperformance. Despite a sell-off in late June 2025, this sector remains up 45 percent year-to-date. In contrast, Chinese internet retail and interactive media stocks, which led gains earlier in the year, have lagged sharply recently. The sustainability of the broader emerging market rally now depends heavily on whether hardware and semiconductor firms can maintain their earnings momentum.

Earnings from the latest reporting season for these tech firms exceeded expectations, with forecasts being revised upwards. This growth is underpinned by robust demand from US hyperscalers, who are continuing massive capital expenditures on AI infrastructure. Even if the long-term profitability of these hyperscaler investments is debated, the near-term revenue for emerging market semiconductor suppliers remains strong.

Valuation Discounts Do Not Guarantee Returns

Chinese software stocks currently trade at multiples roughly half those of their US counterparts. However, strategists caution that low valuations do not automatically translate into superior future returns. Chinese software firms have historically traded at a discount, and a rebound in this sector is not the primary engine of the current market outperformance. The stronger investment case rests on the hardware sector, where earnings growth is tangible and supported by current global spending.

Structural Shifts in Supply Chains

Strategists at J.P. Morgan Private Bank identify three factors driving this structural shift. First, emerging markets are supplying more inputs needed for AI buildout, including advanced semiconductors and critical commodities. Second, capital discipline and shareholder alignment have improved across the region. Third, policymakers have gained credibility by tightening inflation controls and strengthening balance-of-payments management. These factors collectively make emerging markets more attractive for global businesses seeking supply chain diversification and energy security.