Asia Pacific Thematic Report: Maintaining Bullish Stance, Opportunities in AI and Commodities

Overview

This report by J.P. Morgan focuses on three core themes in the Asia Pacific market: maintaining a bullish stance on equities, highlighting strong earnings growth and revisions; AI capex exceeding expectations and the growth potential of 'hyperscale server' order backlogs; and opportunities in commodity markets due to supply-demand mismatches. Despite geopolitical risks (e.g., Iran tensions), macroeconomic growth, corporate earnings recovery, and low market positioning support continued optimism. Additionally, AI capex continues to accelerate, particularly with order backlogs from major cloud providers emerging as a new growth highlight.

Core views

1. In equities, despite concerns over Iran tensions, macroeconomic recovery, earnings growth, and low market positioning drive continued bullish trends. Data shows the Asia Pacific market (MXAP) approaching pre-war highs, with 12-month forward EPS revisions up 10%-11% YoY, indicating strong earnings momentum. 2. In AI, capex continues to accelerate, projected to exceed $800 billion by 2026. The Big Four U.S. cloud providers (AWS, Google Cloud, Azure, Meta) show rapid capex growth, accelerating from 55% in 2024 to over 70% in 2026. Hyperscale server order backlogs (RPO) are growing even faster than capex, signaling substantial future revenue potential. 3. In commodities, supply shocks from Iran have driven spot prices higher, but related stocks (e.g., Chalco) have underperformed, creating supply-demand mismatches. For example, aluminum prices rose 18% YTD, while related stocks fell 6%. This presents structural allocation opportunities. Commodities are also supported by global manufacturing policy shifts, AI-driven resource demand, Trump-era commodity weaponization strategies, and low capex over the past decade.

Analysis framework

The report begins with a macro perspective, analyzing global growth, earnings, and market positioning to assess equity trends, then delves into AI and commodities. For AI, it tracks capex and order backlogs to identify new growth drivers. For commodities, it compares spot prices and stock performance to uncover investment opportunities from structural mismatches. The methodology combines macro and microanalysis, examining both trends and company/industry-level data.

Methodology notes

• Industry Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  Identifies investment opportunities by comparing divergences between commodity spot prices and stock prices to detect structural supply-demand mismatches.

• Industry Analysis FrameworkVolume-Price Breakdown

  Volume-Price Breakdown

  Decomposes commodity price movements into supply and demand factors to assess underlying drivers, such as Iran supply shocks.

• Company Fundamentals & Financial FrameworkFree cash flow analysis

  Free Cash Flow Analysis

  Evaluates future cash flow potential by analyzing hyperscale server order backlogs (RPO) relative to capex to determine company valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• META PLATFORMS INC (META)

  Benefits from AI capex acceleration and order backlog growth

  Strengths

  As one of the Big Four U.S. cloud providers, it holds a core position in AI infrastructure

  Weaknesses

  Not directly involved in compute services sales, but ecosystem growth potential is notable

  Comparison

  Order backlog growth potential may outpace peers

  Risks

  Monitor global AI demand fluctuations and geopolitical risks impacting capex timing

Key data

• Asia Pacific MXAP IndexApproaching pre-war highsDespite oil prices above $100/barrel, the MXAP index nears pre-war levels
• 12-Month Forward EPS Revisions+10-11%Significant upward revisions compared to prior levels
• AI Capex ForecastOver $800 billion by 2026Big Four U.S. cloud providers' capex expected to accelerate
• Hyperscale Server Order Backlog Growth+112% y/yQ1 2026 backlog growth outpacing capex
• Aluminum Price Increase+18% YTDYTD aluminum price up 18%, but related stocks underperformed

Impact & implications

For investors, the report recommends maintaining a bullish stance on equities, particularly in AI and commodities. Accelerating AI capex, especially hyperscale server order backlogs, signals future revenue growth and potential investment waves. Commodity supply-demand mismatches offer tactical allocation opportunities, with defensive resource assets appealing amid macro risks. Long-term value may also rise in sectors tied to global manufacturing policy shifts and AI-driven resource demand.

Risks

• Escalating Iran tensions increasing crude inventory pressures
• Global growth slowdown affecting earnings growth
• AI capex growth may fall short of expectations

What to watch

• Asia Pacific earnings revision trends
• AI capex and order backlog developments
• Global crude inventory levels and price volatility
• Commodity supply-demand dynamics