Asia technology valuations are at historical highs, but earnings support remains intact

Overview

This report is Bernstein's strategy research on the Asia technology sector for 3Q26, combining quantitative factors, valuation, earnings revisions, crowding, and fundamental analysis. The core thesis is that after a strong run, Asia technology is now at historically high valuations with limited room for valuation expansion alone, but the earnings-up revision cycle has not ended, so it should not be treated as a broad sell despite elevated levels; instead, tighter selection is needed within the sector.

Core views

The report maintains a constructive view on Asia technology but emphasizes not chasing higher prices indiscriminately. Among winners, earnings revisions for Computer Peripherals are already at extreme highs, so reducing exposure is advised. Semiconductors and some Communications/Electronic Equipment still have room for further upside revisions, though equipment-related valuations remain elevated. Among laggards, Internet, Entertainment, and Interactive Media & Services have valuations and earnings expectations that have fallen to low levels; although the bottom has not been fully confirmed, the extreme discounting gives the rebuild of some exposure an attractive risk-reward profile. At the factor level, the sharp outperformance of momentum and growth has increased risk, so the report prefers value and quality technology, with selective momentum opportunities in high-quality tech.

Analysis framework

The report combines top-down and bottom-up methods: first it evaluates Asia technology’s performance versus the market, PE/PS valuation, earnings revisions, and crowding, then breaks down to sub-sectors and factor portfolios, and finally combines semiconductor and China internet fundamental analysis with the stock rating table to propose positioning recommendations.

Methodology notes

• Valuation methods12m forward PE and price-to-sales percentile/z-score analysis

  Use 12-month forward PE, PS, and standard deviations from historical averages to measure valuation position at sector and sub-sector levels.

  The report compares valuation of Asia technology, an expensive-tech basket, and each sub-sector against 5-year and 10-year historical levels, to identify valuation bubble risk and low-valuation reversal opportunities.

• earnings_revisionearnings revision balance

  Use earnings-revision trends to judge whether high valuations still have earnings support.

  The report views Asia technology as still being in an earnings-up cycle, and the upward revision trend relative to the market has not yet reached historical extremes, so earnings can still support sector performance.

• positioningcrowding percentile and factor crowding

  Use crowding percentiles to assess positioning risk in momentum trading and sub-sector weights.

  The report notes high crowding in Communication Equipment, Semis, and Electronic Equipment, while Interactive Media, Entertainment, Internet, and Software are in low-crowding or unfavored areas.

• factor_strategymomentum, growth, value, quality and large-cap factor screens

  Evaluate opportunities within Asia technology across momentum, growth, value, quality, and large-cap factors.

  1H26 momentum technology rose about +128% and growth about +69%, both clearly leading; however, after momentum trading valuation and crowding rise, the report favors value and quality technology and recommends selective momentum bets within high-quality names.

Asset mapping & comparison

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

• Asia Technology sector

  Core covered asset

  Strengths

  Earnings revisions are still rising, large-cap tech leadership is sustained, and AI demand and the semiconductor cycle remain strong.

  Weaknesses

  Overall valuation is at historical highs, with both PE and PS substantially above long-term averages, and limited room for valuation expansion.

  Comparison

  PE premium versus market is about 62%, above the 5-year average of about 40%; PS premium is about 84%, above the 5-year average of about 33%.

  Risks

  If earnings revisions slow, elevated historical valuations could trigger de-rating and drawdowns.

• Semiconductors & Semiconductor Equipment

  Bias toward constructive positioning

  Strengths

  AI demand and earnings momentum remain strong, and some names still have room for upward revisions; the report prefers MediaTek and TSMC, and is constructive on storage names like Samsung, SK hynix, and Micron for earnings leverage.

  Weaknesses

  Some equipment and semiconductor-related companies are already at high valuations, with rising crowding.

  Comparison

  Semiconductors are up about +98% YTD versus the market, clearly leading most sub-sectors.

  Risks

  Equipment-related valuation risk is elevated; KIOXIA is rated Underperform, with one rationale being long-term pressure from China.

• China Internet

  Add part of the exposure from low levels

  Strengths

  Low starting point on valuation and sentiment, and possible sentiment improvement from Tencent’s Hy3 model launch, Alibaba’s comments on the June quarter trend, and progress in AI at the application layer.

  Weaknesses

  Debates around AI capex and ROI are likely to persist, and the earnings-down revisions in large-cap internet names are not yet fully confirmed as a bottom.

  Comparison

  Internet is clearly lagging YTD and valuation has fallen to lower levels, creating an extreme divergence versus high-valuation equipment and semis.

  Risks

  Macroeconomic recovery may fall short of expectations, AI investment payback remains uncertain, and earnings-down revisions may continue.

• Entertainment and Interactive Media & Services

  Low-valuation recovery candidate

  Strengths

  Valuation and crowding are at lower levels, and Entertainment shows early signs of earnings recovery.

  Weaknesses

  The down-revision trend has not fully ended and bottoming confirmation is limited.

  Comparison

  Relative to Communication Equipment, Electronic Equipment, and Semis, these laggards are cheaper on both PE and PS.

  Risks

  If earnings recovery does not materialize, low valuation may become a value trap.

• Quality and Value Tech factors

  Factor style to add first

  Strengths

  Relative valuations are more attractive, earnings support remains, and crowding risk is lower than for high-momentum and high-growth.

  Weaknesses

  Absolute valuations are still not cheap, and these may continue to lag in the near term as hot momentum persists.

  Comparison

  1H26 value is about +39%, quality/FCF yield about +38%, both lagging momentum at about +128%, but offering a more balanced subsequent risk-return profile.

  Risks

  If the market continues to chase momentum aggressively, value and quality styles may continue to underperform in the near term.

Key data

• Asia technology market-cap-weighted YTD performanceabout +85%As of end-June 2026, the report says large-cap technology shares continued to lead.
• Asia technology equal-weight YTD performanceabout +40%This shows the sector is up overall but with very large internal dispersion.
• Asia technology 12m forward PEabout 30xMay peak was around 36x; currently about +1.8 standard deviations above the 10-year average.
• Asia technology PE premium versus marketabout +62%Above the 5-year average premium of about 40%.
• Asia technology PSabout 5.1xAbout +2.9 standard deviations above the 5-year average and +2.7 above the 10-year average, near tech bubble levels.
• Semis YTD performance versus marketabout +98%One of the top-performing sub-sectors.
• Computer Peripherals YTD performance versus marketabout +95%The report considers upward earnings revisions to be at extreme levels and recommends reducing exposure.
• Internet YTD performance versus marketabout -47%The largest laggard sub-sector, with valuations now at low levels.
• Momentum tech 1H26 performanceabout +128%The strongest-performing factor within Asia technology, though crowding and forward-assumption risk are elevated.
• Growth tech 1H26 performanceabout +69%The growth factor is strong, but relative earnings revisions versus low-growth names appear extreme.

Impact & implications

The investment implication is a shift from simply chasing the strongest momentum to a more disciplined intra-sector rebalance. Asia technology should not be broadly reduced merely because valuations are high, as earnings revisions remain ongoing. However, elevated valuation and crowded momentum risks should be controlled: reduce exposure to overcooked sectors such as Computer Peripherals, continue selectively holding high-quality AI and semiconductor names, and gradually add China internet, entertainment, and interactive media services exposure where valuations are low, sentiment is weak, and there is potential upside from earnings normalization.

Risks

• Overall Asia technology valuations are at historical highs, and if earnings revisions slow, the sector could de-rate.
• Momentum tech carries high valuation, forward earnings risk, and crowding, creating a reversal risk in trading.
• Communication Equipment, Electronic Equipment, and some Semis/Equipment names have elevated valuation risk.
• Earnings revisions in Computer Peripherals are at an extreme and further upside revision potential is limited.
• China internet still faces uncertainty around AI capex returns, macro demand, and whether earnings down revisions have truly bottomed.
• Although storage names have high earnings leverage, they also carry high volatility and cyclical risk.

What to watch

• Whether Asia technology earnings revisions continue to rise, especially relative to the market.
• Whether 12m forward PE and PS continue to decline from elevated levels, or valuation gets absorbed by earnings growth.
• Whether earnings expectations in Computer Peripherals are peaking and triggering valuation pullback.
• Whether crowding in Semis, Communication Equipment, and Electronic Equipment rises to extreme levels.
• Whether earnings down revisions in Internet, Entertainment, and Interactive Media & Services are truly bottoming.
• Tencent Weixin agent, Alibaba Apsara conference new product launches, and progress in China internet AI at the application layer.
• Whether relative performance between value, quality, and momentum factors rotates.