JPMorgan: Maintain Asia-Pacific Optimism Amid AI Monetization and Commodity Mispricing

Overview

This report is JPMorgan’s thematic investment commentary on the Asia-Pacific region. Its core conclusion is that investors should maintain a tactically optimistic stance toward equities—even amid uncertainties such as the Iran situation. The report argues that market drivers have shifted back from purely geopolitical dynamics to corporate earnings growth, particularly the strong performance of the technology sector and accelerating monetization across the AI value chain. Simultaneously, the divergence between commodity spot prices and equity valuations presents a timely opportunity for tactical accumulation. Coupled with resilient global growth, the overall portfolio allocation environment remains favorable.

Core views

Earnings momentum and macroeconomic resilience form the bedrock of current markets. Although Middle East tensions have raised concerns, both the S&P 500 and MSCI Emerging Markets posted double-digit gains in April, driven primarily by an unexpectedly strong earnings season. Tech sector earnings surprises in the U.S. reached 95%, with the 'Magnificent Seven' outpacing the rest of the S&P 500 by 42 percentage points in earnings growth. Earnings revisions in Asia-Pacific were similarly robust—12-month forward EPS revised upward by 10–11% over recent months—indicating that fundamental improvements are sufficient to offset valuation pressure from geopolitical risks. On the macro front, global GDP growth remains above trend at an annualized rate of 2.7%; U.S. tech equipment and software spending grew at annualized rates of 58% and 23%, respectively, in Q1 2026, while labor markets remain solid. AI investment logic is shifting from pure capital expenditure expansion to monetization driven by 'remaining performance obligations' (RPO). While global AI capex is forecast to grow over 60% year-on-year to more than $800 billion in 2026, a more telling signal is the explosive growth in hyperscale cloud providers’ RPO. Data show RPO growth for the three largest U.S. hyperscalers accelerated from 59% y/y last quarter to 112% y/y this quarter—far outpacing capex growth itself. This implies significantly improved revenue visibility, confirming that AI demand is translating into concrete signed contracts. At present, hyperscalers may therefore be more attractive than pure AI supply-chain names. Additionally, hedge fund allocations to semiconductors have reached historically elevated levels. The commodities sector exhibits pronounced pricing misalignments and structural opportunities. Supply shocks and resilient demand have lifted spot prices, yet related equities have declined amid macro de-leveraging sentiment—creating a rare divergence. For example, aluminum spot prices rose 18% YTD, while Chalco’s share price fell 6%, despite its earnings expectations being upgraded by over 30%. The report emphasizes that the case for long commodity exposure rests not only on short-term mispricing but also on long-term structural drivers: global industrial policy promoting reshoring, resource competition fueled by the AI race, and tight supply-demand balances resulting from a decade of subdued capital expenditure. In Australia, strategists specifically recommend overweighting materials and energy (e.g., BHP, Capstone, Newmont), and adding exposure to real estate (e.g., Goodman) to position for expectations that the RBA’s hiking cycle is nearing its end.

Analysis framework

The report employs an integrated analytical framework combining 'fundamental validation + leading indicator foresight + cross-asset relative valuation.' First, it quantifies whether fundamentals are sufficient to absorb geopolitical risk premiums by comparing index price levels against EPS revision magnitudes. Second, in analyzing the AI theme, it goes beyond current capex data and introduces 'Remaining Performance Obligations (RPO)'—a forward-looking indicator of future revenue certainty—to distinguish investment value between the 'investment phase' and the 'monetization phase.' Third, in commodities, it applies a dual-divergence model—comparing 'spot price vs. equity price' and 'commodity price vs. earnings revisions'—to identify mispricings, further supported by long-cycle supply-side constraints to justify positioning sustainability.

Methodology notes

• Corporate Fundamentals & Financial Framework

  Remaining Performance Obligations (RPO) as a Leading Revenue Indicator

  RPO represents the value of signed contracts not yet recognized as revenue. In this report, analysts interpret RPO growth substantially exceeding capex growth as evidence that AI cloud providers have moved beyond the pure 'burn-rate' stage into a commercially validated monetization phase—making RPO a more predictive gauge of future growth than current revenue alone.

• Event-Driven & Behavioral FinanceExpectation Gap / Expectation Management

  Spot Price vs. Equity Price Divergence Captures Expectation Gaps

  When commodity spot prices rise due to genuine supply-demand tightness, but equities fall on macro sentiment, the resulting 'scissor gap' often signals equity mispricing. The report exploits this divergence to identify buying opportunities—essentially betting on market underreaction to fundamentals.

• Sector/Industry Analysis FrameworkSupply-demand framework

  Structural Shortages Driven by Long-Term Underinvestment in Capex

  The report notes that subdued capital expenditure in commodities over the past decade has constrained future supply elasticity—a classic supply-side analysis. It implies that even modest demand growth could push price floors higher over the medium term, providing a margin of safety for long positions.

Asset mapping & comparison

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

• Amazon (AMZN), Google (GOOGL), Microsoft (MSFT)

  Core AI monetization beneficiaries—surging RPO validates commercial progress

  Strengths

  RPO up 112% y/y, implying extremely high future revenue visibility; capex continues to accelerate

  Comparison

  Higher RPO growth makes them more attractive than AI supply-chain names at this stage

  Risks

  Significant consensus divergence on 2027 capex expectations—some buy-side forecasts far exceed sell-side consensus

• META PLATFORMS INC (META)

  One of the four major CSPs—accelerating AI capex but does not sell compute capacity externally

  Strengths

  Capex growth >70%, placing it in the top tier of AI investors

  Weaknesses

  Does not sell computing resources externally, limiting direct RPO-based monetization verification

  Comparison

  Unlike AWS/Azure/GCP, lacks external cloud revenue RPO as a validation signal

• BHP, Capstone, Newmont

  Top commodity overweight picks for Australia—benefiting from structural supply-demand tightness and gold/copper price resilience

  Strengths

  Combines growth resilience with inflation-hedging properties; low institutional ownership provides room for accumulation

  Comparison

  Materials is the largest overweight in Australian strategists’ model portfolio

  Risks

  Macro de-leveraging sentiment could prolong the equity–commodity price divergence

• Goodman Group

  Preferred Australian real estate name—driven by dual tailwinds: AI data center demand and duration re-rating amid peak-rate expectations

  Strengths

  Benefits from AI-driven data center requirements and yield-seeking behavior as interest-rate peaks approach

  Comparison

  Exhibits stronger structural growth logic than cyclical peers like Scentre and Stockland

  Risks

  If RBA policy path deviates from expectations—e.g., additional hikes—the valuation may be pressured

• Chalco (Chalco)

  A canonical example of commodity pricing misalignment—earnings upgraded but equity price stagnant

  Strengths

  12-month forward EPS upgraded by >30%; rising aluminum prices directly boost profitability

  Weaknesses

  Share price down 6% YTD, weighed heavily by macro sentiment

  Comparison

  18% spot price gain vs. 6% equity decline creates significant reversal potential

  Risks

  Persistent macro pessimism could delay equity price recovery relative to commodity fundamentals

Key data

• MSCI Asia-Pacific 12M Forward EPS Revision+10–11%Index price remains near pre-conflict highs, indicating earnings improvement outpaced price appreciation
• U.S. Hyperscaler RPO Growth (Top 3)+112% y/yAccelerated sharply from +59% last quarter—far exceeding capex growth
• 2026 Global AI Capex Forecast>$800bnOver 60% y/y growth; top four U.S. CSPs account for ~$700bn
• Aluminum Spot vs. Chalco YTD Performance+18% vs. -6%A textbook example of commodity spot–equity pricing divergence
• OECD Oil Inventory Operational Pressure Threshold7.6bn bblsProjected to be reached by end-June; failure to finalize Iran deal could trigger supply disruption
• U.S. Tech Equipment Spending Growth (Q1 2026)+58% annualizedConfirms AI-driven corporate investment remains the core engine of global growth

Impact & implications

For investors, the current environment supports maintaining relatively high equity exposure—with particular focus on AI monetization beneficiaries offering high earnings visibility and market-validated traction. Hyperscalers, given their explosive RPO growth, may offer superior investment appeal versus pure hardware supply-chain names. The mispricing in commodities presents a tactical accumulation opportunity—especially for copper- and gold-exposed names, and materials stocks benefiting from reindustrialization. Investors should closely monitor the end-June timeframe: if Iran negotiations collapse and oil inventories breach the operational pressure threshold, markets could face material dislocation—but until then, the 'buy-the-rumor' strategy remains effective.

Risks

• Failure or delay in Iran nuclear deal negotiations, triggering repricing of geopolitical risk
• OECD oil inventories reaching operational pressure level by end-June, causing physical supply disruption
• Large consensus divergence on AI capex—actual 2027 spending may fall short of aggressive estimates
• Deteriorating business confidence in Europe, revealing divergent resilience across the global economy

What to watch

• Progress on U.S.-Iran negotiations over coming weeks and likelihood of limited-scope agreement
• Whether OECD oil inventories fall below the 7.6-billion-barrel operational pressure threshold by end-June
• This week’s U.S. nonfarm payrolls report (consensus: +50k) and unemployment rate change
• Whether hyperscaler RPO growth sustains triple-digit y/y rates in upcoming quarters
• RBA interest rate decision and market recalibration of terminal-rate expectations