The artificial intelligence (AI) rally across emerging markets is showing signs of slowing after a strong run, prompting investors to reconsider whether opportunities could emerge beyond technology stocks. In its October 15, 2026 report, GREED & fear: K-shaped stresses, AI tremors and the Houthis, Jefferies highlights moderating returns from AI-related stocks, elevated valuations and the potential for broader market participation.

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Emerging-market AI stocks gained 81% in the year to June 2026, according to the report. However, their performance weakened in the second half of the year, raising questions about whether earnings growth can continue to justify high valuations. The slowdown does not necessarily mean the AI investment theme is over, but it may encourage investors to look more closely at diversification and opportunities in other sectors.

Jefferies expects earnings growth for global AI stocks to slow from around 100% in 2026 to 30% in 2027 and 22% in 2028. For global stocks outside AI, the brokerage projects earnings growth of 16% in 2026, moderating to 9% in both 2027 and 2028. These are forecasts rather than confirmed outcomes, and global estimates do not directly determine the performance of emerging-market stocks.

Valuations are another factor behind the shift in investor attention. Jefferies estimates that global AI stocks trade at 23 times forward earnings on an equal-weighted basis, compared with 13 times for stocks outside the AI segment. The difference suggests that investors are paying a premium for AI-related growth, making future returns more dependent on companies meeting earnings expectations.

Despite the slowdown, semiconductor companies remain important to the AI investment story. Chip manufacturers supply the components required for data centres, advanced computing and other AI infrastructure. Jefferies reported that Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics and SK Hynix together accounted for 32.1% of the MSCI AC Asia ex-Japan Index as of October 14, 2026. However, the brokerage's Asia ex-Japan long-only equity portfolio had a combined allocation of 16% to these three companies, indicating a more limited exposure than their collective benchmark weight.

Jefferies' regional portfolio allocations also point towards a broader investment approach. Its recommended allocation to India stood at 12%, compared with a benchmark weighting of 10.9%. China received a recommended allocation of 22%, against a benchmark weight of 19.9%, while Hong Kong was assigned 6%, compared with 3.2% in the benchmark.

These figures reflect Jefferies' portfolio positioning, not a guarantee that India, China or Hong Kong will outperform. Each market has its own economic conditions, corporate earnings outlook, valuations and risks, which investors need to assess before making allocation decisions.

The broader takeaway is that investors may be looking beyond a narrow group of AI-linked companies as the pace of gains moderates. Semiconductor manufacturers could continue to benefit from AI infrastructure spending, while opportunities in other sectors may become more relevant if market leadership broadens. Ultimately, sustainable earnings growth, reasonable valuations and portfolio diversification remain important considerations. A slowdown in AI-related returns alone does not establish that the rally has ended.