AI Trading: Riding the Next Big Wave

The next wave of substantial gains in artificial intelligence may very well originate from beyond domestic markets. Tim Urbanowicz, chief investment strategist at Innovator from Goldman Sachs Asset Management, is strongly advocating for investors to broaden their horizons and consider emerging markets as a prime opportunity for AI-related investments.

“This is where a significant portion of the lucrative AI trade can be realized,” Urbanowicz stated during a recent appearance on CNBC’s “ETF Edge,” characterizing it as “the next major trend.”

He expressed particular optimism for Taiwan and South Korea in the context of the expanding AI ecosystem. These nations, he noted, represent substantial components of broader emerging market indices. For instance, the iShares MSCI Emerging Markets ETF (EEM) has seen a remarkable 26% surge year-to-date, as of Thursday’s closing.

“These countries are pivotal players in the AI landscape, and their valuations have not yet mirrored the dramatic ascent seen in the U.S.,” Urbanowicz explained. “From our perspective, there remains considerable room for substantial, outsized returns within this AI-driven investment theme.”

The iShares MSCI Taiwan ETF (EWT) has surged by nearly 67% year-to-date, while the iShares MSCI South Korea ETF (EWY) has experienced an even more impressive 109% increase, as of Thursday’s U.S. market close. Both of these Taiwan and South Korea-focused ETFs are heavily weighted towards companies involved in AI memory chips, a critical component of the AI infrastructure.

In a special briefing to CNBC, Urbanowicz specifically highlighted the Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM) as a strategic vehicle for investors seeking exposure to potential AI-driven growth in emerging economies. This actively managed fund offers a diversified approach to capturing opportunities across these dynamic markets.

Despite his enthusiasm for emerging markets, Urbanowicz is not entirely dismissing the prospects within the U.S. for AI-related investments. “We maintain the view that the United States remains well-positioned for continued success in this sector,” he affirmed. This suggests a nuanced approach, acknowledging both the untapped potential overseas and the ongoing strengths of domestic technological leadership.

The AI revolution is not a monolithic entity confined to a single geographical region. The foundational hardware, from advanced semiconductor manufacturing to specialized chip design, is increasingly becoming a global endeavor. Countries like Taiwan, a world leader in contract chip manufacturing, and South Korea, a powerhouse in memory chip production, are indispensable to the global AI supply chain. Their technological prowess and manufacturing capabilities directly fuel the development and deployment of AI technologies worldwide.

Furthermore, the demand for AI-powered solutions is creating new economic engines in these emerging markets. Beyond hardware, countries in these regions are also developing robust software and services ecosystems, leveraging AI to enhance their own industries and create new export opportunities. This creates a virtuous cycle of innovation and economic growth, making them attractive destinations for investors looking for long-term AI exposure.

The global nature of AI development also implies a degree of interconnectedness. Innovations in one region can quickly influence and accelerate developments in others. Investors who overlook emerging markets may be missing out on key technological advancements and market leadership that could shape the future of AI.

Therefore, while U.S. tech giants continue to dominate headlines with their AI breakthroughs, a closer examination of global markets reveals a broader and more diversified landscape of opportunity. The ongoing build-out of AI infrastructure and the increasing adoption of AI-driven solutions across various industries present a compelling case for international diversification within an AI investment strategy.