Korea’s AI hardware component stocks with promising earnings potential will likely outperform the memory chip giants when the market rebounds, said a top fund manager focused on the country.

Capacitor makers and AI substrate producers will benefit next year from a broadening of the AI-boom cycle, Lee Wang-seop, Hana Asset Management Co.’s head of equity investment division and portfolio manager, said in an interview this week. He’s also bullish on renewable energy and energy storage providers, anticipating ongoing demand for data center services.

Some of the top holdings in his 748 billion won ($558 million) fund include capacitor manufacturer Samsung Electro-Mechanics Co. and lithium-battery developer Samsung SDI Co.

“We have broadened exposure to other sectors in the AI value chain” beyond semiconductors, Lee said, whose Korea IT fund at Hana outperformed 99% of peers with a 77% year-to-date return. “‘We’re focusing heavily on the intersection of sectors with earnings growth that’s outpacing the Kospi and companies where earnings estimates are also being revised upward.”With the Korean equity market heavily relying on Samsung Electronics Co. and SK Hynix Inc., a rush to exit extended AI holdings dragged the benchmark Kospi into a bear market on Thursday.

Lee’s strategy highlights portfolio managers repositioning beyond them to capture AI-linked gains, rather than risk missing a rally in other parts of the supply chain.

When the market rebounds, Lee expects semiconductor materials, components and equipment stocks to outperform the large-cap memory manufacturers. A wide range of sectors, including energy storage providers, are projected to outpace the Kospi in net profit growth next year, he added.

“We are now just entering a phase where prices for commodity package substrates and multilayer ceramic capacitors (MLCC) are starting to rise sharply as well,” said Lee, who runs the Hana IT Korea Securities Master Investment Trust. “The duration and the magnitude may not be as big as memory, but such a cycle is projected to start as well. That’s why I’m most optimistic on the sector.”The semiconductor industry has gone through a pricing ripple effect, with AI demand first starting at premium products, such as high-bandwidth memory.

Once those supplies get tighter and more expensive, the boom spilled over to everyday chips and parts like regular DRAM and NAND. Similar dynamics may be at play in the package substrate sector, with price gains first in high-end products.

Shares of Samsung Electro-Mechanics, one of the global leaders in AI substrates and MLCCs, have more than tripled this year, far outpacing the memory makers. Samsung SDI has roughly doubled.

Read: AI Boom Drives 770% Jump in Asia’s Lesser-Known Chip Supplier Despite the recent selloff, Korea-focused funds are still headed for a banner year, with the Kospi rising roughly 35%. Lee says his fund outperformed the benchmark, largely on early bets on front-end chip equipment manufacturers such as TES Co.

Lee’s fund remains slightly overweight Samsung Electronics and SK Hynix, keeping tabs on their oversize influence on the market. But investors must contend with uncertainties on whether AI investment can remain resilient even as inflation lingers, borrowing costs rise, and competition from Chinese chipmakers intensify, Lee said.

He is closely watching 2027 earnings estimates for Korean chipmakers, with the market split on the outlook and potential upside should analysts lift their forecasts. Another indicator on his radar is whether foreign investors continue to sell Korean equities even after SK Hynix finishes its share buyback program.

“A rebound of the magnitude seen in the past will be difficult” for Korean memory makers, he said. “We will see sectors that can see larger share price returns than semiconductors.”