NVIDIA's pivot to physical AI sparks tech rally in Asia
What's the story
NVIDIA's expansion into physical artificial intelligence (AI) has sparked a rally in Asian tech stocks. The company's growing demand for production and assembly services from Asian suppliers, which now account for about 90% of its production costs, has contributed to this trend. The shift is a significant increase from last year's 65%, highlighting NVIDIA's increasing reliance on Asia for key components and manufacturing capabilities.
Market impact
Asian companies reaping benefits from NVIDIA ties
The list of Asian companies benefiting from their association with NVIDIA is growing. Recently, South Korea's LG Electronics, Taiwan's Nanya Technology, China's Huizhou Desay SV Automotive, and Pateo Connect Technology Shanghai have all seen their stocks rise after reports of partnerships or collaborations with the US chip designer. This trend highlights how demand driven by NVIDIA is influencing stock performance across Asia's tech supply chain.
Strategic alliances
Shift in partnerships toward physical AI
NVIDIA has been expanding its network of Asian partners, mainly through deeper ties with chip suppliers like SK Hynix and Samsung Electronics. These partnerships were primarily focused on boosting AI computing power. However, the latest round of collaborations in Asia marks a shift toward physical AI, including robotics. The news has led to significant jumps in stock prices for companies like LG Electronics (up 15%) and Nanya Technology (up 10%).
Future prospects
Physical AI touted as the next big thing
NVIDIA's CEO Jensen Huang has described physical AI as the next big thing after generative AI. The company's push into this area, which includes robotics, autonomous systems, and AI-enabled manufacturing, highlights Asia's role as a key partner in its expansion. This shift is expected to create opportunities for more tech suppliers to join the supply chain as demand for AI continues globally.
Investment trends
US tech giants ramping up AI spending
US tech giants are ramping up their AI spending, with Amazon, Microsoft, and Alphabet each planning to spend about $190 billion-$200 billion this year. Meta Platforms has also increased its budget to as much as $145 billion. NVIDIA accounts for about half of Microsoft's capital expenditure and roughly a quarter of Amazon's, with smaller shares at Meta and Alphabet.
Structural advantage
Asia's structural advantages amid new AI demand
The surge in demand has been reflected in the performance of suppliers such as Samsung and SK Hynix, both of which reported massive profit jumps. Rajeev De Mello, a portfolio manager at Gama Asset Management SA, emphasized Asia's tech base as a structurally important advantage amid new AI demand across semiconductors and hardware infrastructure. He also noted Asia's significant experience and supply chains for advanced semiconductors and robots as a strong foundation for physical AI implementation.