Emerging market equities are experiencing their strongest earnings growth phase since the 2002-2004 supercycle, driven by a surge in artificial intelligence investment that is reshaping the asset class. This marks a "stark contrast" to the past decade, during which second-year earnings forecasts were typically revised downward from initial estimates. This shift is critical for investors evaluating whether emerging markets can continue their outperformance relative to U.S. equities this year. At the same time, it highlights growing concentration risks, as chip manufacturers have become the primary force behind earnings forecast upgrades, shifting the narrative away from consumer and traditional economic sectors. In what analysts describe as a "highly unusual cycle," earnings estimates for the MSCI Emerging Markets Index have been revised upward by an average of 6.5% this year under the base-case scenario. However, this robust upward trend is exceptionally concentrated. Strategists note that the entirety of these earnings upgrades is attributable to just three companies: Samsung Electronics, SK Hynix, and Taiwan Semiconductor Manufacturing. Notably, the analysis team previously accurately identified key turning points for emerging market equities. In the first week of October 2022, they upgraded their rating on the asset class, citing signs of a market bottom, and the MSCI Emerging Markets Index indeed reached a cyclical low by the end of that month. Morgan Stanley has now raised its year-end target for the emerging markets index from 1400 to 1700, implying approximately 5% upside from Thursday's closing level. The firm's new base-case forecast projects earnings per share of $118 by December 2026, representing 33% year-over-year growth, and $131 by December 2027, an 11% increase. Strategists wrote, "In nearly three decades of tracking emerging markets, we can scarcely recall a single industry—the semiconductor sector, particularly memory—along with a single, albeit less dominant, market—South Korea—exerting such overwhelming dominance within the asset class."