A recent pullback in AI-related equities has reignited debate among emerging market investors over whether the sector’s rally has run its course, according to Mark Martyrossian, Director at Aubrey Capital Management.
Martyrossian argues that the correction, which hit memory chip manufacturers and AI infrastructure stocks particularly hard, served as a reminder that the semiconductor industry remains fundamentally cyclical and sensitive to supply and demand dynamics, despite the enthusiasm surrounding artificial intelligence over the past two years.
He noted that the future trajectory depends heavily on two forces: the pace of capital expenditure from major technology companies, and how quickly current supply shortages in memory chips and related components get resolved.
On the demand side, Martyrossian pointed to comments from Nvidia’s Jensen Huang forecasting that AI infrastructure spending could reach $4-5 trillion by 2030, while also cautioning that a shift in how that spending is financed, i.e. debt instead of cash flow, raises sustainability questions, citing Oracle’s recent downgrade as a warning sign.
On supply, Martyrossian said consensus estimates point to shortages persisting until at least the second half of 2027, but suggested China’s AI ambitions could disrupt that timeline. He highlighted Moonshot’s Kimi 3 agentic model, released last week, as a potential repeat of the last year’s brief but very impactful “DeepSeek moment” that shook global markets. The new release could also undercut assumptions about the necessity of paying premium prices for the most advanced chips.
He also referenced strong debut trading for Chinese chipmakers CXMT and YTMC, while cautioning that Chinese production capacity would reportedly need to quadruple just to meet domestic demand, and that SK Hynix and Samsung continue to dominate the most advanced chip segments.
Asked to characterise the moment, Martyrossian offered this assessment directly:
“The conundrum remains whether the correction just experienced marks a floor after all the excitement of the last 2 years or whether there is more to come. We have trimmed our AI exposure but still retain a decent position as the US hyperscalers are more likely to increase capex in the coming quarter than reduce it (as shown by Alphabet’s results this week). However, having a strong list of alternative options is important at this stage.”
Turning to India, Martyrossian said the market’s limited exposure to the AI trade had made it a casualty of foreign institutional investor outflows, which he put at $27 billion as of mid-July — the weakest pace of net FII buying since 2016. However, he pointed to early signs of a reversal, with $1.8 billion of net buying recorded in the first two weeks of the month, and suggested that any sign of fatigue in AI markets could accelerate a rotation back into India.
He added that India’s underlying economic fundamentals remained strong, with GDP growth exceeding 7% in each of the past two quarters, and that valuations now sit well below their September 2024 peak. As a result, Aubrey Capital has begun modestly increasing its Indian exposure from low levels, while continuing to closely monitor the emerging markets trends.
