Mark LaMonica: Welcome to another edition of Market Minute. I’m here with Dennis today. And Dennis. One thing investors are very excited about is semiconductor stocks are huge gains with a lot of the players in the semiconductor industry. What’s your take.

Dennis Li: Well Mark definitely. So the market spotlight last week is on the semiconductor industry. If you look at their stock performance they went parabolic. That’s because the narrative of AI is now changed from AI training’s inference. And now it’s more about the AI. So the adoption of AI agents basically push up the demand for more compute powers, which require more AI infrastructures such as GPUs, CPUs and memory chips.

Dennis: So there’s a supply shortage compared to a very lofty expectation of the AI demand. And that’s why we see stocks like AMD’s microns. Samsung. All these stock prices have surged in the last few weeks, and the market just seems very enthusiastic about buying into the rally.

Mark: And do you share any of that enthusiasm? What’s the Morningstar Investment Management view on semiconductors?

Dennis: Question about the semiconductors, about it’s whether these AI CapEx can be justified by monetization. And the reason why I say that, it’s if we’re looking at the semi conductor industry, most of the investments were primarily coming from hyperscalers and a few large enterprise. So to tell whether they are sustainable, there are a few things that we still need evidence.

Dennis: The first one, I think, is timing. When will we see the real productivity gain from AI? And then the second one is if we do have productivity gain, how much of those productivity productivity gains can be translated into profitability? I think it’s important that in the on the application layer, the company can generate enough economic values to justify all these AI spending in the long run.

Mark: Okay, so if maybe that’s not a space that we see as particularly attractive right now. Are there any areas where you think investors are overlooking and potentially a good place to look?

Dennis: Well, we’re contrarian, so we prefer space that are out of favor by the market, where the sentiment is very weak and the valuation is pricing with a lot of bad news. So at the moment, if you look at the current environment, inflation is sticky. Central bank policy remains tight. And then if we take a look at the metrics, the consumer confidence, it’s very soft, not just within Australia but also across the other parts of the world.

Dennis: So because of that, consumer has trading down for cheaper substitutes or even cut back on the discretionary spending. So we see this some sectors like beverage or branded household products, they’re under a lot of pressure. So we think the market is actually pricing a lot of myopic assumptions and discounting silicone factors, rather than by ignoring the long term cash flow generation capabilities for these industries.

Mark: A lot of the geopolitical commentary has been focused on what’s going on in the Middle East. But we do have a switch this week with the US China Summit. Any thoughts on what we should look out for from Trump’s meeting or Trump’s return visit to China?

DennisYes. So I think a lot of attention from the market will be on the highly anticipated presidential meetings between the United States and China. As you mentioned, it’s the second time that Trump visited China since the first 1 in 2017. And if you look at the last few years, geopolitical risk, geopolitical conflicts is the main risk to the global economy.

DennisSo that’s make these meetings such a high stakes events that market is looking out for. Having said that, we think it’s very difficult to predict the outcome of the meetings and what both sides will be agree on or remain not. So we think when we’re investing in China, such as tanks and Alibaba, these China technology companies, we tend to focus on their fundamentals rather than reacting or trading based on political headline. We think it’s very important for long term investors.