T. Rowe Fund Targets Chinese Winners of Booming AI Supply Chain

A top-performing T. Rowe Price fund is ramping up bets on Greater China companies lower down the AI supply chain, betting the region’s investment cycle still has room to catch up with global trends.

T. Rowe is investing in manufacturers benefiting from bottlenecks in the AI supply chain, ranging from printed circuit boards and chip equipment to power components. These companies are often not captured by the benchmark indexes and the broader Chinese market remains weak, but the AI investment cycle is creating winners, according to Agnes Ng, a portfolio specialist at T. Rowe.

The top holdings of T. Rowe’s $735 million China Evolution Equity Fund include PCB makers Unimicron Technology Corp., WUS Printed Circuit Kunshan Co. and Shengyi Technology Co. The fund has returned more than 25% this year versus a 7% decline in the benchmark MSCI China All Shares Index. It was ranked among the top 6% over a three-year period in Morningstar’s China equity peer group at the end of August.

China is “at a different point in the investment cycle,” said Ng, who focuses on Chinese equities. “Even if expectations for the global AI cycle are being reset, China can still have a significant catch-up investment cycle underneath it.”

Capacity constraints faced by the top chipmakers in South Korea are also creating spillover opportunities for the next tier in Japan and China, Ng said. Samsung Electronics Co. and SK Hynix Inc. have announced plans to invest tens of billions of dollars in building new plants as demand from AI data servers for high-bandwidth memory and storage drives demand.

“We need the motherboard to hold all those chips together, to help them communicate with each other. That’s why printed circuit boards are equally important,” Ng said. The components are “quite critical in helping all the chips communicate with each other,” and the space still offers “a lot of opportunities,” she added.

In energy, Ng said the fund is shifting from commodity components toward more advanced suppliers of power management chips, voltage-conversion equipment and backup generation as infrastructure gets more complex.

Beyond AI, the fund invests in businesses in areas including new consumption and industrials. Still, that diversification does not lessen the fund’s conviction in AI.

China’s AI investment cycle is still 18 to 24 months behind the US, and is a sturdier driver of returns than government support, Ng said.