Scale up, profit up? Asia tech needs more upbeat catalysts to justify valuations

From strong tech demand to fears of an AI bubble and the Iran war, the stock performance of Asia's tech sector has been extremely volatile. In the global and Asia outlook series (Dec 2025) and a cross-expertise note on AI (Feb 2026), we argue that Asia's tech sector is relatively resilient due to upbeat growth prospects and its role as an AI enabler with hardware supply. The market performance in Taiwan and South Korea reaching all-time high and valuation has confirmed our view. In the report, we look at the fundamentals of Asia’s AI enablers and the catalysts and risks in the market.Rebounding back to all-time highWhen the Iran war first started, Asian markets faced large pressure amid the rally from 2025 to Feb 2026 and their exposure to the Strait of Hormuz. However, most have pared losses, especially those with big AI exposure doing even better than before the conflict started. Taiwan is a clear example, surging 4% above its previous peak with better P/E and performance than the S&P 500. After Asia catches up with the US on valuation, the question is whether the positive momentum can continue.China: A major AI contender to the USWithin the AI cycle, the evolution of infrastructure, model, application and data feed into one another. Despite the challenges from US export controls, China excels in digital infrastructure with government support and abundant electricity supply. With the lower investment and US export control, China has chosen to focus on model efficiency. China also has a relatively wide use cases and data availability through its tech giants, population and the role in global manufacturing. As such, China is major AI contender to the US as a lower-cost alternative and relatively full ecosystem.Taiwan: Strong foothold in high-performance computingAdvanced semiconductor manufacturing is irreplaceable, regardless of competition among US hyperscalers or model choices. Taiwan is a winner from US demand to scale up computing power. Its market share belonging to top 10 global foundries has grown from 67% in Q4 2022 to 76% in Q4 2025. TSMC's profitability continue to surge despite the overseas expansion. The trend from "made-in-Taiwan" to "made-by-Taiwan" will have a low impact on high-performance computing.South Korea: Giants in memory chipsBeyond GPUs, memory chips are core components for data centers and AI infrastructure. South Korea's memory chipmakers, mainly Samsung and SK Hynix, held high market shares of 68% and 49% in DRAM and NAND respectively in Q4 2025. Currently, there has been a sharp price increase in memory chips, driven by much stronger-than-anticipated demand and a supply imbalance across product types. Still, chipmakers are more cautious about investment this time to avoid the deja vu of booms-and-busts. But it is a chance for China to capture higher market share.Japan: Hidden gems in AIAlthough Japan's industrial sector cannot compete with China in terms of prices, its product specialization strategies for advanced products have made it indispensable in global AI supply chains and helped it retain its role and profitability. At the same time, there are more hidden gems in leveraging transferable skills for chipmaking.But staying on top will be harderDespite positive prospects in AI and Asia's tech sector's critical role in supply chains, the market will need to see more catalysts to justify the current and possibly a higher valuation. What has happened is that the market has already narrowed the valuation gap with the US, with expectations of faster revenue growth and price hikes in 2026.For China, it will take another DeepSeek moment and breakthroughs to reinforce its ability not only to improve and scale up technologies but also to innovate from zero to one. Bigger progress in import substitution can also help lift revenue growth for Chinese chipmakers and gain global market share. However, any weaker-than-expected AI innovation can dampen market sentiment.In the rest of Asia, most markets are closely linked to the US-centric demand and investment by hyperscalers. After multiple rounds of upbeat expectations, whether Taiwan and South Korea can maintain pricing power is key for further earnings upgrades. The risks for Taiwan are slower profit growth and lower gross margins, while South Korea may face a pullback due to China's competition and oversupply. In Japan, investors will embark on treasury hunts for hidden gems critical to AI supply chains, as they hold the key for global players to diversify away from China, such as rare-earth refining and recycling technologies. Still, the downside is how poor the foreign relations with China can get, which can affect exports.Therefore, Asia's tech sector remains important with distinct characteristics and roles in the global AI industry. With valuations climbing closer to US levels, some Asian markets (specially Taiwan and South Korea) are now less resilient than before. Asian tech sector will need more catalysts to justify the AI growth story, and they are bound to be more sensitive to negative news flows than before if any.