Paradoxically, foreign investors are large net sellers in booming Korean and Taiwanese markets. This isn't a bearish call on the AI theme. Rather, for long-only Emerging Market funds, the outsized performance of a few large-cap tech stocks has caused these positions to breach portfolio concentration and risk management limits, forcing them to trim holdings.

Previously, rising AI CapEx was a universal positive signal for tech stocks. Now, investors are differentiating sharply, punishing companies that can't demonstrate a clear path from their massive AI investments to tangible revenue and earnings growth, creating significant performance dispersion among AI leaders.

Initially, investors rewarded companies for huge AI spending announcements. Now, this same news causes stock market jitters. The anxiety stems from historical parallels like the internet boom, where overexcited investors backed the wrong companies and lost fortunes, even though the technology ultimately succeeded.

While bullish on India, investors should note it's not participating in every global trend. Unlike North Asia (Korea, Taiwan), India is not a player in the "AI picks and shovels" hardware theme. It also lacks the investment drivers seen in Europe related to serving an aging population.

The powerful earnings growth story for North Asian markets like Korea and Taiwan is driven by the durable AI theme, not cyclical factors. Their role as essential suppliers of semiconductors for the AI supply chain provides a structural tailwind that should endure beyond the current geopolitical conflict, assuming a global recession is avoided.

A massive U.S. capital expenditure cycle for AI and hyperscalers is driving heavy issuance in the U.S. high-grade bond market. This increased supply can crowd out investor demand for emerging market investment-grade credit, creating a notable headwind by potentially pushing up DM spreads.

The exceptionally low cost of developing and operating AI models in China is forcing a reckoning in the US tech sector. American investors and companies are now questioning the high valuations and expensive operating costs of their domestic AI, creating fear that the US AI boom is a bubble inflated by high costs rather than superior technology.

Unlike the broad, debt-fueled internet spending of the 90s, the current AI boom is equity-fueled and concentrated among a few hyperscalers. This circular spending dynamic among a handful of giants is less impactful on the broader economy and potentially less stable as they begin to take on debt.

The massive capex spending on AI data centers is less about clear ROI and more about propping up the economy. Similar to how China built empty cities to fuel its GDP, tech giants are building vast digital infrastructure. This creates a bubble that keeps economic indicators positive and aligns incentives, even if the underlying business case is unproven.