A latest report from Morningstar indicates that artificial intelligence is transitioning from hype to delivering substantial cost savings, which has significant implications for investors. In their latest report "Asian Markets: AI Reduces Long-term Operating Costs," the company mentioned that AI adoption is expected to structurally reduce long-term operating costs across multiple industries, enhance profitability, and create revaluation opportunities for undervalued companies.
The report notes that during the current earnings season, Chinese companies have shown mixed performance. Consumer cyclical industries experienced weak growth with profit margins falling short of expectations. However, the communication services sector stood out due to AI applications, with growth or cost-driven profit expansion exceeding expectations.
For investors seeking AI investment opportunities, understanding when and how to allocate funds across different industries is crucial, particularly as these industries benefit from AI at varying paces. The report specifically highlights some undervalued companies worth watching due to viable cost reduction measures.
Which Industries Benefit Most?
Consumer Cyclical and Defensive Industries: These sectors remain undervalued and may achieve profit improvements beyond expectations. Focus companies include Budweiser, Kao, Trip.com Group (09961), among others.
Communication Services Industry: This sector has already achieved cost improvements through AI, with multimedia content, advertising production, travel agencies, and recruitment platforms using AI agents to reduce labor costs. Focus companies include Naver, Baidu (09888), Tencent (00700), NetEase (09999), among others.
Semiconductor Industry: AI optimization of chip production processes will reduce R&D costs. Major companies like Taiwan Semiconductor Manufacturing (TSM.US)(2330.TT) and SK Hynix are expected to lead this trend. Focus companies include Taiwan Semiconductor Manufacturing, SK Hynix, Luxshare Precision Industry Co.,Ltd. (002475.SZ), Murata, among others.
Financial Services Industry: AI automation of customer service center processes and loan approvals will reduce costs for banks and insurance companies. Focus companies include HSBC Holdings (00005), Mitsubishi UFJ (MUFG), DBS Group Holdings (DBS), Tokio Marine Holdings, among others.
Healthcare Industry: AI will optimize operations and improve outcomes in clinical trials and drug development data management. Focus companies include Hoya, YIDU TECH (02158), among others.
Asian equity market strategist Kai Wang stated that the company believes AI is currently enhancing operational leverage through labor and R&D substitution, and even a slight positive growth rebound in undervalued consumer industries could lead to profit improvements beyond expectations.
Morningstar recommends that investors closely monitor AI application progress in these industries, particularly companies with cost reduction potential, to capitalize on investment opportunities arising from market revaluations.