Bernstein said in its latest Asia technology strategy report that semiconductors remain its preferred theme, supported by a still-strong earnings upgrade cycle despite elevated valuations

Asian technology stocks look set to remain the key market driver in the third quarter, but investors are becoming increasingly selective as lofty valuations, uneven earnings and questions over whether the AI spending boom can justify its price tag fuel sharp swings across the sector.

Bernstein said in its latest Asia technology strategy report that semiconductors remain its preferred theme, supported by a still-strong earnings upgrade cycle despite elevated valuations. The brokerage continues to favour AI infrastructure leaders including Taiwan Semiconductor Manufacturing, SK Hynix Inc OLD, Samsung Electronics Co Ltd and MediaTek Inc, while warning investors to focus on companies with durable earnings momentum rather than chasing expensive AI trades.

Monday’s trading reflected those concerns. KOSPI plunged more than 3%, far underperforming peers, while Nikkei 225 dropped more than 1%, dragged lower by heavyweight technology names. Taiwan’s benchmark bucked the trend to trade 1% higher with Hang Seng also rising nearly 0.5%.

The moves extend a volatile period for Asian technology stocks after Samsung Electronics’ preliminary earnings failed to reassure investors that memory-chip profitability can keep pace with massive AI-related capital spending. Investors have also become more cautious after several months of outsized gains, questioning whether the billions of dollars being committed by hyperscalers to AI infrastructure can ultimately generate sufficient returns.

In South Korea, Bernstein expects AI memory to remain a key earnings driver. SK Hynix continues to benefit from leadership in high-bandwidth memory (HBM) chips used in Nvidia’s AI processors, while Samsung Electronics is also seen as a major beneficiary of expanding AI infrastructure investment.

For Japan, Bernstein remains constructive on Apple’s supply chain, favouring MediaTek-linked ecosystem names and electronic component makers with exposure to AI smartphones and premium consumer electronics, while maintaining an Underperform rating on Kioxia amid tougher memory market dynamics.

Bernstein continues to favour Taiwan and South Korea’s AI ecosystem. It maintains Outperform ratings on TSMC, SK Hynix, Samsung Electronics and MediaTek, while remaining more selective in Japan and China, where it prefers companies with stronger earnings visibility and more reasonable valuations.