JPM Asia Thematic Strategy (must read)

J P M O R G A N Global Markets Strategy 11 October 2026

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Asia Thematic Strategy Why AI remains foremost

Price action in Asia in 2026 can be characterized at the highest level as AI vs non-AI Equity Macro Research – with lesser differentiation between other sectors/markets. We expect this pattern Rajiv Batra AC to carry through into 2027, with the outcome for AI stocks determining not only ( allocation alpha but also overall market beta. Indeed, AI stocks in Asia are now >50% of index weight (Figure 1) and are likely to contribute ~70% of earnings J.P. Morgan Securities Singapore Private Limited

growth in 2027 (Figure 2; similar to 2026). AI exposure in Asia is primarily in the Mixo Das AC hardware layer, both in the global/US ecosystem (Taiwan, Korea and some China) ( and the China ecosystem, with the vast majority of the earnings dependency and J.P. Morgan Securities (Asia Pacific) Limited/ J.P. index weight in the former. The economics of this hardware layer are currently Morgan Broking (Hong Kong) Limited very positive – with supply-demand tightness (expected at least through 2028) Tim Huang leaving Asian firms with significant pricing power to go with volume growth – ( driving ecosystem net income to over $1tn by 2028. But having transitioned from J.P. Morgan Securities (Asia Pacific) Limited/ J.P. a volume to a pricing/margin trade late last year, the key question for these stocks Morgan Broking (Hong Kong) Limited now is about the duration of the spending cycle. And as the JPM Tech equity Erin Zhang, CFA research team has highlighted, the duration depends largely on how well AI is ( monetized above the hardware layer – at the hyperscalers and, more importantly, at their customers – AI models and applications. At the hyperscaler layer, ROI SAC Registration Number: S J.P. Morgan Securities (China) Company Limited at this point is very strong (>30%, Figure 3), and we believe the funding constraints can be overcome (FCF should start to improve by 2028, Figure 4) – Khoi Vu, CFA ( which should keep the current momentum in AI capex intact. Power is another constraint – but also being addressed. Monetization at the model/application layer J.P. Morgan Securities Singapore Private Limited is the main focus of markets at present and incoming information on this front will Joy Wang continue to drive sentiment about the broader AI ecosystem. We believe there are ( sufficient pathways for the model layer to deliver on monetization (approaching $300bn in ARR by end-2026; Figure 7; and anything better than 2x J.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) Limited annual growth from there should be good enough). For now, the developments Rushit Mehta remain positive – agents and cybersecurity (Figure 6) are presently driving token ( growth (Figure 5), while regulation, safety and geopolitics are the risks to consider. Further out, even higher level questions need to be answered about value capture, J.P. Morgan India Private Limited, J.P. Morgan Tower, Santacruz(E), Mumbai - 400098, SEBI competitive advantages, economic displacement, social structures, financial Registration: INH , ( . stability, etc., but the evidence we have at present is not sufficient to conclude on these in any definitive way. Overall, we believe it remains important to be open- minded about the extent of AI upside and reassess conditions from time to time, instead of subscribing to definitive timelines and end-states. As such, we remain OW Tech/Taiwan/Korea in our regional allocation recommendations and AI remains the biggest among our preferred themes.

• Economics of the hardware layer: The main driver here is ongoing demand exceeding existing and upcoming supply – leaving the Asian hardware ecosystem with substantial pricing power amid continued strong growth in volumes. This should bring ecosystem net income to over $1tn by 2028 and FCF…