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Thought of the day

Samsung Electronics on Tuesday forecast a 19-fold increase in second-quarter profit, a third straight quarter of record operating profit built on continued demand for memory chips. Nevertheless, the South Korean company's shares fell 6.9%, contributing to the Kospi’s near-5% decline on the day. Nasdaq futures are also pointing 0.8% lower ahead of the US market open.

Following the strong rally in semiconductor stocks in the second quarter of this year, investors are increasingly looking beyond tech and toward other sectors as they reassess the next phase of the AI trade. Over the past month, for example, the S&P 500 health care, industrials, and financials subsegments have all outperformed the Philadelphia Semiconductor Index’s 5.6% gain.

While we remain confident in AI’s growth story and continue to see attractive opportunities in semis and hardware, we have also highlighted that the next leg of equity gains is likely to be marked by a broadening of market leadership. Investors should ensure diversified exposure across sectors and regions.

A resilient economic backdrop in the US should support a broadening rally. The US economy remains resilient, and a solid labor market, strong credit creation, and fiscal support should all help boost earnings outside the AI complex and enable this year’s equity rally to broaden further. We see particular opportunities in consumer discretionary amid healthy spending, financials due to growing capital market activity and improving profitability, and health care thanks to policy clarity and innovation momentum. We also like industrials and utilities given improving cyclical manufacturing conditions and exposure to secular themes.

Asia offers a combination of AI leaders and strong earnings growth. While Asia’s AI hardware supply chain should continue to drive regional markets higher, the gradual normalization of traffic through the Strait of Hormuz should lead to a rebound in oil and rate-sensitive sectors such as airlines, industrials, real estate, and financials. The “value-up” movement remains a structural tailwind for markets like Singapore and Malaysia, while Japanese equities should stay supported by continued share buybacks, a return of international inflows, a cyclical catchup, and the government’s growth strategy.

Europe's equity gains can also broaden. While we are Neutral on European equities, we see compelling opportunities in areas where structural growth, earnings resilience, and cyclical improvement align. These include the industrial sector, which benefits from themes such as reshoring, defense spending, electrification, AI data center buildout, and improving manufacturing momentum. Consumer discretionary also looks attractive as demand stabilizes and luxury spending recovers, while Germany offers selective opportunities as fiscal support, stronger earnings, and improving growth prospects support companies exposed to defense, AI, the energy transition, and automation.

So, we believe investors should ensure their core equity allocation is broadly diversified. Those looking at transformational innovation for long-term gains should consider not just AI, but also Power and resources and Longevity.