J.P. Morgan: The upward cycle for AI and semiconductors will extend to 2027, optimistic about the performance of Asian tech stocks next year.

J.P. Morgan's latest research suggests that, despite ongoing market concerns over an artificial intelligence bubble, the AI-driven upcycle for semiconductors is far from peaking. The duration of this cycle will exceed typical patterns and extend to 2027, providing strong support for Asian tech stocks’ performance in 2026.

According to Chasing Wind Trading Desk, the bank upgraded its expectations in a report released on November 11, 2025, forecasting global semiconductor revenues to grow by 18% in 2026 and another 11% in 2027. This judgment is mainly based on generative AI still being at a steep early adoption curve, leading cloud service providers (CSPs) maintaining a strong willingness for capital expenditure, and a conservative expansion strategy among key supply chain players.

J.P. Morgan states that the Asian tech market in 2026 will show a “subtle” balance, with investors repeatedly worrying about the cycle peaking, while at the same time seeing continuous EPS (earnings per share) upgrades driven by AI infrastructure construction and some component price increases. The firm believes that strong earnings upgrade trends will ultimately push Asian tech stocks higher in the coming quarters.

This view directly challenges the growing market narrative of an impending “AI bubble burst,” offering investors a new perspective when evaluating the technology sector. J.P. Morgan argues that the unique nature of the current cycle means historical patterns cannot be rigidly applied, and that investors should focus more on the underlying structural drivers.

Market divergence and earnings upgrades coexist

In its report, J.P. Morgan notes that although classic indicators like cycle duration and earnings growth suggest the current uptrend is approaching its latter stage, this does not change its upward trajectory. The firm expects that, in the first half of 2026, Asian tech stocks still have room to rise, benefiting from strong earnings growth among AI leaders.

Over the past three months, the momentum for EPS upgrades in Asian tech stocks has significantly accelerated, driven by memory chips and other bulk tech commodities. The report notes that strong AI demand is “crowding out” supply across the tech sector, resulting in shortages in areas spanning advanced packaging (CoWoS), cutting-edge wafer foundry, high-bandwidth memory (HBM), ordinary assembly and test (OSAT), multilayer ceramic capacitors (MLCC), and standard DRAM/NAND. As suppliers are increasing capacity much slower than normal in this cycle, price hikes driven by these shortages will further drive up company profits.

Four reasons supporting an extended cycle

J.P. Morgan’s analysts believe that several unique features of this cycle set it apart from previous general recoveries driven by global GDP growth, and are enough to extend the uptrend to 2027.

First, this is a “K-shaped recovery” cycle. Since mid-2023, the market has shown a split pattern between AI and non-AI demand. AI-related demand remains robust, while tech demand in other areas is seeing an adjustment.

Second, generative AI adoption is climbing a steep S-curve, with a trajectory similar to early phases of smartphones and public cloud. The report points out that smartphones took about seven years, and public cloud about nine years, before annual growth rates dropped below 20%. In contrast, generative AI is only in its fourth year now and is expected to maintain a 50%-60% year-on-year growth rate by 2026, indicating massive growth potential.

Third, leading cloud service providers (CSPs) have the ability and willingness to keep investing. While the market worries about free cash flow (FCF) for smaller CSPs, J.P. Morgan’s analysis shows that the top six CSPs will see a 67% jump in capital expenditure in 2025, and are expected to further grow by about 32% in 2026. Even assuming flat free cash flow in 2027, these companies could still support another 13% increase in capex, indicating solid finances to support ongoing AI infrastructure expansion.

Finally, there is a slow supply response in key areas. During this cycle, growth in semiconductor capex has been quite conservative, with supply highly concentrated among a handful of players like TSMC and SK Hynix. The report predicts TSMC’s capex will only grow by 16% in 2026, while the DRAM industry’s capex will grow by just 11%. This means shortages in key segments such as 3nm process, CoWoS and HBM will persist to 2026, thus prolonging chip shortages.

Based on these judgments, J.P. Morgan suggests a “barbell” portfolio strategy for investors in 2026. One end is to allocate to first-tier AI enablers; the other, to companies benefiting from price hikes and margin expansion, which have notable earnings upgrade potential. The report maintains an overweight rating on TSMC, naming it the preferred stock.

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