Asia’s investment climate in mid‑2025 is bifurcated. The AI compute cycle is driving powerful capital spending and earnings momentum across semiconductors and test equipment, while autos/EVs navigate uneven demand, price wars, and regulatory cross‑currents. China‑related policy risk and tariffs continue to set the valuation ceiling for internet platforms and hardware supply chains, even as leaders adapt with targeted M&A and tighter compliance. Japan’s tech complex benefits from AI‑led orders but faces headline and governance scrutiny; Korea’s champions are positioned for a semis upturn. Investors should lean into high‑quality beneficiaries of AI infrastructure and disciplined auto incumbents, while underwriting elevated volatility and geopolitical risk premia.
Sector Review
Semiconductors and equipment: Demand tied to AI accelerators, HBM memory, and advanced‑node ramps underpins constructive multi‑year fundamentals. Foundry scale and process leadership favor Taiwan Semiconductor (capacity prioritization, pricing power), while Korea’s Samsung benefits from memory normalization and device pull‑through. Test intensity remains elevated, supporting Advantest’s revenue growth, margins, and cash generation. Tool makers like Tokyo Electron are battling near‑term headline risk and a reported profit forecast cut, yet retain strong profitability and balance sheets. MediaTek is exposed to competitive ASP pressure in application/baseband processors despite healthy end‑market growth forecasts.Internet platforms and AI ecosystems: Tencent is executing on content adjacencies (gaming stake in Arrowhead, Ximalaya acquisition) and remains resilient despite China’s evolving tech regulation, including scrutiny around AI tools. Alibaba reflects weaker sentiment amid US‑China trade caution and portfolio trimming by global funds; the recovery path hinges on reigniting core commerce growth and clarity on strategy. SoftBank’s equity narrative is increasingly tethered to AI, with upside to operating optionality from AI server ambitions but counterbalanced by high leverage and execution risk.
Autos and EVs: The regional auto picture is mixed. BYD’s cost leadership and international expansion (overtaking Tesla in parts of Europe) drive share gains, but China’s price wars test margin durability and raise reputational risks in certain markets. Toyota’s hybrid‑first stance is paying off with booming US sales and collaboration on EVs, though tariff headlines and regulatory shifts keep earnings visibility in flux. Hyundai faces legal and policy uncertainty on EV rules, requiring agile strategy execution. Pure‑play Chinese EV makers XPeng and Li Auto show product innovation but operate in a margin‑squeezing competitive arena where delivery cadence and capital efficiency are critical.
TOP 5 Investment Picks
Taiwan Semiconductor Manufacturing Co., Ltd. (2330.TW). TSMC is the linchpin of AI compute, with fierce demand for AI‑related semiconductors, advantaged technology roadmaps, and strong customer stickiness. Management’s focus on optimizing existing fabs (quashing UAE fab rumors) favors returns and execution quality amid geopolitics and tariff pressure. With shares below prior highs and multi‑year AI tailwinds, the risk‑reward skews favorable provided supply, pricing, and utilization remain tight.Samsung Electronics Co., Ltd. (005930.KS). A diversified exposure to the semis upcycle and premium Android share, backed by KRW 219B revenue and KRW 27B earnings in 2024, strong backlog, and positive analyst stance. Partnerships like Nintendo’s Switch 2 chip supply add volume visibility, while smartphone innovation and wearables broaden profit drivers. Scenario analysis points to materially higher market cap in an upside case; balance sheet scale and product breadth temper cyclical risk.
Advantest Corp. (6857.T). A pure‑play beneficiary of rising test intensity at advanced nodes. TTM revenue of ¥904.8B with 90% YoY growth, 47% operating margin, and robust free cash flow underscore superior execution and pricing power. Low leverage and a disciplined payout enable continued R&D and service expansion. If the AI test upcycle normalizes at elevated levels, earnings durability can surprise to the upside.
BYD Company Ltd. (1211.HK). Scale, vertical integration, and cost leadership support robust delivery growth and international share gains, including leadership over Tesla in parts of Europe. Despite price wars, margins have remained stable and backlog is healthy; battery technology and product cadence are competitive moats. Near‑term volatility around pricing and legal headlines is the trade‑off for long‑term volume and platform advantages.
Tencent Holdings Ltd. (0700.HK). Resilient fundamentals and high‑engagement ecosystems in gaming and audio give Tencent multiple monetization levers. Strategic investments (Arrowhead, Ximalaya) deepen content moats while the base business benefits from China’s large player base. While regulation is a persistent overhang, the company’s adaptive posture and diversified revenue mix support a cautiously optimistic multi‑year view.
Honorable mentions: Tokyo Electron Ltd. (8035.T) for cyclical upside as AI and HBM tooling intensity rises once headline risks abate; Toyota Motor Corp. (7203.T) for hybrid‑led earnings resilience and credible EV collaboration optionality; Hyundai Motor Co. (005380.KS) for improving EV positioning if regulatory uncertainty resolves; MediaTek Inc. (2454.TW) as a recovery candidate if share loss stabilizes and AI‑adjacent sockets expand.
BOTTOM 5 Investment Risks
Alibaba Group Holding Ltd. (BABA). Sentiment remains fragile amid US‑China trade caution, portfolio reductions by notable funds, and intensifying e‑commerce competition. The stock’s retreat from a ~$144 peak to near $113 reflects diminished confidence. Without a clear acceleration in core commerce and strategic clarity, multiple expansion is capped and downside event risk persists.SoftBank Group Corp. (9984.T). The equity is highly geared to AI sentiment after an ~85% 12‑month rally and trades near 52‑week highs. Leverage is substantial (¥19.65T debt vs ¥4.19T cash; current ratio 0.84), operating cash flow is negative, and the pivot to AI server manufacturing carries supply chain and yield risks. Execution or market hiccups could quickly pressure equity value and financing latitude.
XPeng Inc. (XPEV). Shares at $18.31 reflect ongoing volatility tied to EV demand uncertainty. While deliveries improved and a Buy rating emerged, stake reductions by key holders and a crowded competitive field constrain visibility on sustained margin expansion. Execution must overcome sector‑wide pricing and incentive dependence.
Li Auto Inc. (LI). A credible product roadmap, but the investment case hinges on maintaining growth while defending margins against escalating competition and changing subsidies. The scenario range ($25–$45) underlines wide outcome dispersion. Absent clearer evidence of operating leverage and export traction, risk‑adjusted returns look less compelling.
MediaTek Inc. (2454.TW). Shares have slid to 1250 amid pricing pressure and fierce competition despite healthy multicore market growth forecasts. Execution on AI‑enabled edge roadmaps and supply chain stability must improve to reverse sentiment. Until visibility on share and margins strengthens, upside appears capped relative to higher‑quality semis peers.
Watchlist risks: Tokyo Electron Ltd. (8035.T) given the TSMC leak probe and profit forecast cut despite strong fundamentals; BYD Company Ltd. (1211.HK) for China price wars and labor‑related legal headlines; Tencent Holdings Ltd. (0700.HK) for evolving AI and content regulation in China; Toyota Motor Corp. (7203.T) for tariff shocks that could dent margins; Hyundai Motor Co. (005380.KS) for regulatory litigation that may alter EV adoption timelines.
Key Investment Themes
AI compute is the dominant earnings engine, lifting foundry utilization, memory pricing, and test/tool intensity. Leaders with scale, technology moats, and balance‑sheet flexibility are best placed to monetize this cycle. Regulatory and geopolitical frictions remain the key valuation overhang, particularly for China‑exposed internet platforms and globally integrated supply chains. In autos, profit pools are bifurcating: cost leaders and hybrid‑savvy incumbents defend margins, while pure‑play EVs face pricing pressure and policy uncertainty. Capital discipline and execution quality are decisive differentiators across the board; companies prioritizing focused capex, cash generation, and compliance are more likely to compound through volatility.This article is not investment advice. Investing in stocks carries risks and you should conduct your own research before making any financial decisions. Note also that this review per region is based only on the companies followed in this magazine (see the Stocks in the Finance section).
