1Q26 Asian earnings: Can tech sustain this rally?

Asian equity performance has been remarkable. Despite elevated geopolitical tensions in the Middle East and the asymmetric energy impact on Asian economies, the setback to Asian equity markets proved short-lived. A sharp rebound since the ceasefire announcement has driven an outsized 16.3% year-to-date return in U.S. dollar (USD) terms, outperforming most other developed market equities.

Leading technology names continue to outshine given their robust earnings growth. Over three-quarters of the MSCI AC Asia Pacific Index’s market cap have reported 1Q26 earnings, and according to our earnings tracker¹, the top three tech names are on track to contribute 30.5 percentage points of the 53.6% year-over-year (y/y) earnings growth for Asian equities. Beneath this headline strength, however, a beat-miss ratio of 44%-to-27% relative to consensus estimates points to a potential broadening of earnings momentum (Exhibit 1).

In this note, we explore recent earnings results from an industry perspective, assess the durability of the technology-led rally, and consider the outlook implications for the broader Asian equity opportunity set. 

Bottleneck to neck

Leading names in the artificial intelligence (AI) hardware value chain delivered another strong set of above-estimate results, with earnings more than doubling y/y. As in the prior quarter, signs of strained capacity remain apparent—if not more so. Across most earnings calls, management teams increasingly stressed that industry supply is expected to be outstripped by surging AI demand and that the emerging adoption of agentic AI will likely exacerbate the shortage.

Whether for foundries, where tight supply for advanced logic chips (3-nanometer and below) is expected to persist through 2027, or for memory, where more customers are entering multi-year contracts despite a further 85%-98%² increase in prices over the quarter. Overall, industry dynamics continue to point to a persistent supply-demand imbalance. And crucially, despite ongoing efforts by emerging Chinese names to develop domestic capabilities, the competitive edge for these leading hardware makers remains intact, with the technological gap unlikely to be closed in the near term—suggesting well-protected profitability.

Coupled with continuous advancement of leading-edge logic chips and the next generation of high-bandwidth memory, the combination of renewed technological leadership and structural shortage continues to bode well for leading tech companies in the region.

Importantly, earnings strength is not exclusive to this handful of leaders. An industry-wide shortage has incentivized companies to increase capital expenditure and expand production capacity to capture surplus demand. This has translated into higher orders and shipments across semiconductor production equipment (SPE) manufacturers, from wafer coaters and dicers to chip testers. With Asia holding over 80%, 70%, and 55%³ of market share in these respective segments, most of this upstream demand has been retained within Asian markets. That said, with some SPE names beginning to report elevated order backlogs, signs of further bottlenecks are emerging. 

More than memories and semis

AI-led earnings strength extends beyond the semiconductor industry. Within AI data centers, traditional electrical and hardware components are also essential to the infrastructure—from power electronics, liquid cooling, and energy storage systems to networking solutions, factory automation systems, and capacitors. The acceleration in AI data center build-outs has fueled additional demand for these hardware and industrial names in Asia, lifting earnings growth. Notably, a growing number of suppliers have signaled plans to gradually raise production capacity in the coming year, reflecting expectations for this demand to remain a structural tailwind.

Even in materials, earnings appear to be asymmetrically lifted by AI-related metals—from complex materials such as CCL⁴ to basic metals such as aluminum, copper, and lithium. While Chinese names have likely also benefited from the ongoing anti-involution campaign, the global AI capex cycle is increasingly being felt through these far-upstream segments, beginning to translate into sustained growth for select base metal miners and underpinning a full vertical of AI-led demand.

Capex and paychecks

As a growing range of companies and sectors become earnings-reliant on the AI upcycle, increasing emphasis is being placed on the pace at which downstream hyperscalers can monetize the high levels of AI capex and investments. While earnings momentum may appear to have slowed for Chinese hyperscalers this quarter, updates on AI development remain positive. AI capabilities are being increasingly monetized through AI-embedded services such as automated marketing, direct cloud services, and Model-as-a-Service (MaaS) revenue.

The upward revisions to capex guidance are also encouraging and suggest increased visibility and confidence among Chinese hyperscalers in AI monetization, posing a continued tailwind for the AI supply chain.

Investment implications

As outlined in prior earnings notes, following the sharp valuation re-rating in Asian equities, a continued rally would need sustained upward revisions to earnings growth. Market dynamics have delivered accordingly, with consensus estimates now pointing to 36.8% and 18.1% earnings growth in 2026 and 2027, respectively (Exhibit 2). The focus has therefore shifted to delivery against these expectations, and the strong 1Q results have proven reassuring on this front. 

That said, as market concentration in leading names continues to intensify, investors should remain mindful of heightened volatility risks—particularly from potential unwinds of increasingly crowded positions.

As AI advancement progresses—from agentic AI to the next wave of innovation—demand is expected to outpace supply across a broader set of key inputs in the AI supply chain.

This broadening dynamic suggests investors may be better served by looking beyond the headline names and toward the wider AI value chain, spanning equipment, components, and metals. Such positioning would still capture the structural tailwinds of the AI upcycle while offering more diversified portfolio exposure.

¹Analysis is based on the MSCI AC Asia Pacific index and includes quarterly reporting companies only (approx. 80%-85% market cap). Earnings refer to GAAP net income. Estimates based on FactSet consensus data. Index-level figures are in USD terms, which are based on FactSet’s average exchange rates for reported numbers or exchange rates as of consensus dates for estimated numbers, while regional market-level figures are in local currency terms, which are override to local market currency instead of listing exchange currency. Beat-miss ratios are based on a 5% margin. Data reflect most recently available as of 20/05/2026.
²Source: TrendForce. Conventional DRAM estimated to have increased by 93-98% q/q, NAND estimated to have increased by 85-90% q/q.
³Source: Tokyo Electron Annual Report 2011, BCG Matrix, Advantest Investors Guide 2026.
⁴CCL refers to Copper Clad Laminate which is the foundational base material used to manufacture Printed Circuit Boards.

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