Investing.com–Asia’s technology sector is poised for a promising year in 2025, with valuations now reflecting high bond yields and earnings trends showing early signs of recovery, Bernstein analysts said in a note.
The sector trades at a forward price-to-earnings multiple of 21.5x and a price-to-sales of 2.4x, which aligns with its 10-year historical averages. With the impact of rising bond yields apparently factored in, Bernstein analysts say the sector is well positioned for a rise unless yields rise above 5%.
Internet, entertainment and interactive media are attractive subsectors due to their relatively cheap valuations and potential for tactical earnings support, analysts say.
While semiconductors look expensive in terms of revenue multiples, Bernstein notes an upward trajectory in earnings revisions. Key growth drivers include AI-related demand, which adds optimism for companies like Taiwan Semiconductor Manufacturing (NYSE:) (TSMC).
Memory sub-segments, although controversial, could see an upward inflection by the middle of the year. TSMC, SK Hynix Inc. (KS:), and Samsung Electronics Co Ltd (KS:) are identified as top picks among semiconductors, supported by the adoption of AI in data centers, Bernstein analysts said.
The brokerage was less optimistic about IT services and software, citing record valuations and profits that are unlikely to support growth.
Similarly, China’s internet sector started 2025 on shaky footing, weighed down by muted macroeconomic signals and geopolitical risks. Bernstein, however, sees potential for improvement as pessimistic valuations normalize.
Companies like Tencent Holdings Ltd (HK:) and Meituan (HK:) are favored for their risk-reward profiles, while NetEase Inc (HK:) also remains attractive despite subdued expectations after the rebound.
Bernstein also points to a broader recovery trend for the technology sector, driven by improving sentiment and valuation resets. However, crowding risks remain low relative to financials and commodities, suggesting the sector is underexposed by historical standards.