4 Emerging Markets Lead Next Wave of AI Growth

While investor focus for the artificial intelligence boom remains on the U.S., new analysis shows key emerging markets are far outpacing America in AI adoption. About 20 percent of revenue from emerging market companies is now linked to AI, with countries like India, the UAE, China, and Saudi Arabia leading in regular use and trust of the technology, according to reports from HSBC and Deutsche Bank.

"The greater threats over the longer term would come from a prolonged strain on the hydrocarbon revenues that have helped drive the huge AI investments made by the region at home and abroad," Adrian Cox, a thematic strategist at Deutsche Bank, said via email, highlighting the main risk to the Gulf's AI ambitions.

The U.S. ranks just tenth for regular AI use, according to Deutsche Bank, trailing India in the top spot, followed by the United Arab Emirates, China, and Saudi Arabia. In the UAE, nearly 65 percent of the working-age population already uses AI tools. HSBC analysis finds that across emerging markets, 40 percent of labor costs are exposed to AI automation, representing about 5 percent of total operating costs.

For investors, this trend points toward a new set of undervalued opportunities. HSBC identified a screen of 72 emerging market companies with tangible AI use cases that trades at just 13.7 times forward earnings, which the bank's models show is 18 percent undervalued. This suggests the next leg of AI gains may come from outside the familiar U.S. tech sector.

Gulf's AI Ambition Meets Geopolitical Risk

The Gulf region is uniquely positioned for AI leadership, boasting abundant cheap energy for data centers and deep-pocketed sovereign-wealth funds to drive investment. After Virginia and Texas, Saudi Arabia and the U.A.E. are the next top global locations for data centers. However, the war in Iran introduces near-term risks. Recent attacks on data centers in the U.A.E. and Bahrain, plus disruptions to the global helium supply critical for semiconductor manufacturing, have raised questions, though Gulf leaders insist their long-term investment plans are unaffected.

China's Tech Giants Lead AI Integration

HSBC's analysis points to Taiwan, Korea, and mainland China as the most likely beneficiaries of the next AI wave. The report highlighted several Chinese firms already deploying AI to significant effect. Baidu is embedding its OpenClaw AI agent across its portfolio, while Tencent Holdings is using generative AI to accelerate game development and improve marketing. E-commerce firm Trip.com is using an AI agent to improve traveler experiences, and Yum China Holdings now uses AI to analyze customer feedback and resolve 90 percent of customer issues without human intervention.

This article is for informational purposes only and does not constitute investment advice.