The new meme stock craze likely to end in tears in Asia

Robin Parbrook

Some sectors in Asia are seeing bubbles emerge. Just as with the US meme stock craze, it’s not likely to have a happy ending for many over-exuberant retail investors.

Bubbles are appearing in certain sectors in Taiwan and Korea. In the latter case, it resembles the US meme stock trend that resulted in the dramatic rise and decline in shares such as Gamestop.

Artificial intelligence in T-AI-wan

In Taiwan anything considered an artificial intelligence (AI) play has recently been rapidly inflated by retail investors.

In particular, basic box assembly companies and contract manufacturers like Quanta, Wistron and Inventec rose 50% in July alone, according to Factset. Their share prices have more than doubled year-to-date. In the case of Wistron, its share price has more than quadrupled over the period.

All three companies, among other products, assemble AI servers. Asian retail investors now seem to believe this will change their businesses to a dramatic extent. This is unlikely in our view.

Assembling an AI server will not be so different from assembling a traditional server. And considering AI servers are far more powerful, we believe the overall volume of servers to be assembled may actually fall.

All three companies have consistently had very thin operating margins on their assembly business of 1-2%, reflecting the low value added nature of what they actually do.

We don’t doubt that AI is a potentially ground-breaking technology, but it’s still in its relative infancy and applications are still to be defined.

The scientist and futurist Roy Amara stated that “we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run”. This has become known as Amara’s Law. We believe that with this in mind, we are currently running close to the peak of inflated expectations when it comes to supposed AI stocks in Taiwan at least.

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