The relentless surge in AI capital expenditure shows no sign of slowing, yet the direction of fund flows is clearly shifting. In contrast to the lofty valuations of US tech behemoths, Asia's AI supply chain—encompassing semiconductors and data center infrastructure—is drawing increasing investor attention.

According to a report, PIMCO fund manager Emmanuel Sharef is ramping up exposure to Asian markets. He argues that compared to US tech equities, Asian assets offer more attractive valuations, stronger earnings growth, and more direct exposure to the build-out of data centers. Concurrently, Sharef is underweighting most of the hyperscale cloud providers and members of the "Magnificent Seven" tech giants.

His rationale centers on the mounting credit risk associated with the relentless AI spending spree. He contends that the escalating capital outlays are inflating debt burdens and squeezing free cash flow at these companies, which in turn places significant pressure on their already elevated valuations.

"You don't necessarily need to own the most expensive stocks to capture a specific theme or market trend," Sharef stated. The fund he manages, with approximately $19 billion in assets, has outperformed 97% of its peers over the past three years.

Where to focus your investment radar now? Sharef emphasizes the transmission of AI capital expenditure through the supply chain. As data centers continue their rapid expansion, new demand is being generated across a broad spectrum of sectors, including semiconductor components, cooling equipment, cabling, optical devices, power systems, construction machinery, and metal materials.

Acting on this thesis, the fund made significant purchases of Samsung Electronics, SK Hynix, and TSMC last year. Currently, approximately 60% of its stock allocation is directed toward these related assets. These companies not only trade at relatively lower valuations but also stand to benefit more directly from AI infrastructure investment.

In Sharef's estimation, the AI trade is steadily diffusing from US tech giants to the very companies that enable their growth. As capital spending funnels into data centers, chips, and underlying infrastructure, the biggest winners may not just be the most visible tech titans. Instead, these Asian "pick-and-shovel" suppliers could well emerge as the victors in the next phase of the AI boom.