At a time when the global euphoria about AI has propelled a three-fold surge in Nvidia Corp. and a 50% jump in a key US index for semiconductor manufacturers in less than a year, investors are pointing toward emerging markets for better value and a bigger pool of options.

The asset management arm of Goldman Sachs Group Inc. said it’s looking specifically for stakes in the manufacturers of AI supply-chain components, such as cooling systems and power supplies. JPMorgan Asset Management favors traditional manufacturers of electronics that are morphing into AI leaders, while investment managers at Morgan Stanley are betting on players where AI is reshaping business models in non-tech sectors.

“We see AI as a growth driver in emerging markets,” said Jitania Kandhari, deputy chief investment officer at Morgan Stanley Investment Management. “While we have previously invested in direct AI beneficiaries like semiconductors, going forward it will be key to look for companies in different industries that are adopting AI to enhance earnings.”

AI stocks are already leading a $1.9 trillion rebound in emerging markets this year, with Taiwanese and South Korean chip companies such as Taiwan Semiconductor Manufacturing Co. and SK Hynix Inc. accounting for 90% of the gains, according to data compiled by Bloomberg.

Despite this rally, most emerging-market AI stocks still offer far better value than their US peers. While Nvidia trades at 35 times its projected earnings, Asian AI giants are typically valued between 12 and 19 times.

Developing markets also offer faster growth. Analysts see a 61% increase in earnings for emerging-market technology companies as a whole, compared to the 20% rise that they were penciling in for US peers, according to data compiled by Bloomberg.

So far, the stars of the show are those companies which already were technology leaders prior to the AI rally, such as TSMC and Hon Hai Precision Industry Co.

The duo and MediaTek Inc., also a chipmaker, feature in a JPMorgan single-country fund that invests in Taiwanese equities and has outperformed 96% of more than 1,400 peers. The three stocks are also among the top-10 holdings of the iShare MSCI EM Ex-China ETF, which has doubled in value over the past five months.

“The tech companies that have historically been the suppliers to the big names, may well emerge as the big players themselves,” said Anuj Arora, head of emerging markets and Asia Pacific equities at JPMorgan Asset Management. “The early adaption of this technology means these companies are far ahead of their competitors in leveraging newer evolutions.”

Still, the buzz is widening and more investors are pouring in money.

For example, Korea’s Hanmi Semiconductor Co., majority-owned by billionaire Kwak Dong Shin’s family, has surged about 120% this year for the best gains among members of the MSCI Emerging Markets Index. It as also seen its share of foreign ownership increase in recent weeks, according to data compiled by Bloomberg.

In Vietnam, IT services provider FPT Corp. has jumped almost 20% this year, lifting the Ashmore EM Frontier Equity Fund as the best performer among actively managed emerging market funds in the US.

For EM-focused exchange-traded funds, more than half of all inflows this year have gone into the iShares MSCI EM ex-China ETF, whose top 10 holdings include companies that are investing in AI, according to data compiled by Bloomberg.

Elsewhere, established businesses have attracted fresh investor interest after signaling that they’re moving into AI.

Saudi Arabia is becoming a hotbed for Chinese AI ventures, such Alibaba Group Holding Ltd.’s cloud partnership with Saudi Telecom Co.

India’s Reliance Industries Ltd., the petroleum giant run by billionaire Mukesh Ambani, has developed a chatGPT-style model with capabilities in 22 Indian languages. The company is also part of the digital transformation in the country of 1.4 billion people.

“We would point to the potential ‘national champions’ mindset that is developing around AI in some markets,” said Luke Barrs, global head of fundamental equity client portfolio management at Goldman Sachs. “Countries are focused on fostering homegrown companies that can be future leaders.”

The trade is not without its risks. 

Emerging markets are tied closely to the US, meaning that an AI selloff could echo across the world. Alternatively, if stock-market gains broaden out, then other sectors may catch up and AI names could lag behind.

Still, investors are increasingly finding EM alternatives to US tech stocks that have over-extended themselves, said Morgan Stanley’s Kandhari. 

“In emerging markets, they are seeing AI as an under-appreciated driver going forward,” she said. “There’s a lot of low-hanging fruit to juice there.”