“We are moving into later-cycle dynamics,” Farris says. “None of these stories are new anymore. The investment numbers are already very, very large and so once you have got a very large base, it’s very difficult to produce high growth rates.”
“You can think of it like a child,” Farris adds. “A one-year-old can grow its height very rapidly. A 20-year-old can’t grow its height at all but it’s still alive. We are late into this cycle but we are not at the peak.”
Leading AI companies in the US are still locked in a brutal competition among themselves to develop the best model. Farris says this suggests that the industry has not reached its zenith just yet.
That said, the flurry of capital-raising activity in the AI space has raised concerns that there might not be enough liquidity to go around. Aside from OpenAI’s and Anthropic’s planned IPOs, Google’s parent company Alphabet made headlines on June 2 when it raised US$84.75 billion ($109 billion) in equity capital to fund its investments into AI. Alphabet’s deal is the largest secondary offering in history, and includes a US$10 billion private placement with Warren Buffett’s Berkshire Hathaway.
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“The IPOs are going to take some liquidity out of the market, but they are also going to fund continued spending,” Farris says. “All of these things are emerging vulnerabilities now.”
History repeats itself
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“Look, some of the big names are likely to suck some capital but if they are going to the indices, it’s a different argument,” says Vis Nayar, CIO of Eastspring Investments. Photo: Albert Chua/The Edge Singapore
For Vis Nayar, CIO of Eastspring Investments, the IPO bonanza surrounding the biggest names in AI and tech feels like an echo of the flurry of public listings that were seen five years ago at the height of the spac (special purpose acquisition company) boom.
In 2021, multiple companies chose to go public by merging with a spac. A spac is a shell corporation that is set up explicitly to raise capital through an IPO. The spac then uses the capital raised to merge with a private company. If the merger is successful, the private company will take over the spac’s spot on a publicly listed stock exchange.
Going public via the spac was very popular in the early to mid-2020s because of its speed as compared to the traditional IPO process, which could take between six months and two years. 2021 was a banner year for spac. According to data from SPAC Analytics, roughly US$162 billion was raised from over 600 spac IPOs in the US that year.
Companies that have gone public via the spac route include Southeast Asian ride-hailing giant Grab. The company started trading on the Nasdaq in December 2021 after undergoing the biggest spac merger in history at a valuation of nearly US$40 billion.
“You don’t need a very long memory,” says Nayar. “In 2021, not very long ago, there was a lot of IPO issuance in the US. You can imagine some of the big names that came out that year. There was a very aggressive Fed tightening cycle in the rate then, but some of the IPOs had very material force. They went public in 2021 and by 2022, they were looking quite painful. I think the difference now is, we are not expecting as aggressive a change, but we need a lot of direction from the Fed.”
Much attention has been paid to Elon Musk’s rocket company SpaceX, which started trading on the Nasdaq on June 12. Analysts who were bullish on the stock pointed to its inclusion in major indices such as the Nasdaq-100 and FTSE Russell’s. SpaceX’s quick entry into these indices were seen as unprecedented considering how it has yet to turn a profit.
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“Look, some of the big names are likely to suck some capital but if they are going to the indices, it’s a different argument,” Nayar notes. “When we go to business school and study these things, there’s all the signalling of companies and exits of long-term investors. I think a lot of people are debating those technical points as well but in reality, there is an appetite.”
Monetary policy’s tightening
When the war in Iran first broke out on Feb 28, most analysts were focused on the energy supply shock and how the blockade of the Strait of Hormuz, which handles around 20% of the world’s energy supply, will send oil prices rising. Those fears have already been realised, with the price of Brent crude now hovering at around US$90 a barrel, up from around US$70 before the war. Oil prices are likely to go up further once existing buffers and inventories are exhausted.
Farris argues that the impact of the Iran War will be greater on refined products like jet and bunker, naphtha, olefins, aromatics, and fertilisers, than oil. In fact, the impact of the war has been even greater on currencies. Asian currencies will depreciate in the face of a stronger US dollar as well as the region’s trade balance exposure to imported energy, he says.
“Markets have gone off and moved how they think about the US, from expecting interest rate cuts this year to now expecting a hike by the end of the year. We have got 26 basis points of a Federal Funds Rate increase priced through December. We almost have two hikes priced by the middle of next year and that’s pushed up front-end yields in the US,” Farris notes. US inflation rose to a three-year high in May, rising 4.2% from a year ago.
Those shifts have spurred a rally in the US dollar, thus exacerbating the financial burden of higher energy prices. Indonesia, a big importer of energy, announced another rate hike on June 9, when it raised its benchmark rate by 25 basis points to 5.5%. The sudden move was Indonesia’s second hike in three-weeks. Farris says the off-cycle rate hike should not have come as a surprise.
“You just can’t have a currency depreciating [at an] 18% to 20% annualised rate for very long before the central bank has to react. These depreciations have been pretty strong and they are driving policy responses. Indonesia now [has] 75 basis points of rate hikes. They will probably have to do a little bit more.”
Think Asia, think active
Nonetheless, Farris and Nayar remain sanguine on Asia for the rest of this year. The key, they say, is to be selective on which sectors and companies to enter, rather than to write off an entire market based on how their corresponding indices are performing.
“One of the key things to think about, is in 2025, we argued Asia would outperform and it did,” Farris says. “In most of 2025, it was very difficult to even get an Asian audience to really buy into the idea that Asia would outperform because Asia had underperformed for so long. We argued at the beginning of this year that Asia would outperform, and Asia is outperforming again.”
Countries such as Taiwan and South Korea have been standouts in the market, mostly thanks to the gains tracked by their chip companies amid the boom in AI. As of June 10, the stock price of Taiwan’s semiconductor foundry TSMC has gone up by 45% in the year to date, while South Korea’s memory chip giants Samsung Electronics and SK Hynix have gone up by 152% and 215%, respectively, over the same period.
“It is concentrated in a few markets, but there’s greater revenue,” Farris says. “If you look at returns in the US, the Magnificent 7 have become a zero-sum game. They are not all doing well, and when one of them announces a new [AI] model that appears to overtake one of the others, you get relative movement in prices.
“But in all cases, they all need DRAM (dynamic random-access memory), they all need GPUs (graphics processing units), and they all need foundries. That’s the reason why this outperformance will likely continue even if we get some degree of slowing in growth.”
