Pimco’s top-performing $19 billion Balanced Income and Growth Fund is targeting Asian companies in semiconductor manufacturing and critical minerals, anticipating they will benefit most from the accelerating global AI infrastructure build-out.
- Fund shuns expensive US AI hyperscalers, favoring Asian chip and materials firms
- AI-driven capex boom creates demand for semiconductors, cooling, interconnects, and rare earths
- Chinese suppliers dominate critical materials but geopolitical risks spur sourcing shifts
What happened
Emmanuel Sharef, who manages Pimco’s flagship Balanced Income and Growth Fund, shared insights on the fund’s strategic pivot towards Asian companies that support artificial intelligence infrastructure. The fund, valued at $19 billion, has outperformed 97% of competitors over the past three years primarily by overweighting firms in Taiwan, Hong Kong, Singapore, and mainland China.
Instead of increasing exposure to leading US AI hyperscalers or the 'Magnificent Seven' tech giants—whose soaring valuations and credit pressures make them less attractive—the fund invests heavily in semiconductor manufacturers such as Samsung Electronics, SK Hynix, and Taiwan Semiconductor Manufacturing. It also targets companies in the supply chain, including those producing cooling systems, power supplies, and essential rare earth minerals tied to data center construction.
Why it matters
The AI expansion relies not just on software innovation but on extensive physical infrastructure, including semiconductors, cooling equipment, cables, and rare earth elements. By focusing on Asian suppliers of these components, Pimco is positioning itself to benefit from the significant capital expenditures required to build and equip AI data centers globally.
This strategy highlights a shift in the AI investment landscape: rather than chasing inflated valuations among US cloud giants, more sustainable growth may come from the foundational hardware providers concentrated in Asia. Furthermore, geopolitical tensions and supply chain constraints, especially concerning rare earth minerals in China, make these materials and their suppliers even more critical in the AI ecosystem.
What to watch next
Investors should monitor how geopolitical developments affect the availability and pricing of rare earth minerals and other critical inputs necessary for AI infrastructure. As US companies seek alternatives beyond Chinese suppliers, there could be new opportunities or risks emerging in global sourcing and supply chain adjustments.
Additionally, the performance of Asian semiconductor firms and related infrastructure companies will be key indicators of how well the AI-driven capex cycle sustains momentum. Pimco’s approach may signal a broader market trend where investors increasingly focus on hardware supply chain beneficiaries outside the traditional US tech leaders.