A top fund manager at Pacific Investment Management Company (Pimco) is betting that the next wave of artificial intelligence (AI) winners will emerge outside the crowded US mega-cap tech space, pivoting instead toward Asian equipment suppliers, Chinese financial stocks, and healthcare names.
Portfolio manager Emmanuel Sharef, who runs the firm's flagship 60/40 Balanced Income and Growth Fund, has steered the nearly $19 billion vehicle to outperform 97% of its peers over the past three years, according to data. Sharef argues that many US tech behemoths have become less attractive as surging AI spending inflates debt burdens and clouds earnings visibility.
"Right now, we are underweight most hyperscalers and also underweight most of the 'Magnificent Seven' names because of their rich valuations," Sharef said in an interview earlier this week. "You don't necessarily have to hold the most expensive stocks to capture a theme or a market trend."
The fund employs a systematic stock-selection approach grounded in value, quality, momentum, and growth factors. Still, this repositioning reflects growing skepticism on Wall Street about whether elevated valuations and relentless AI capital expenditure can justify further equity upside. With geopolitical tensions, rising oil prices, and sticky inflation pressuring markets, some investors are now hunting for returns in cheaper corners of the market.
Sharef noted that Pimco remains overweight Asia, citing robust earnings growth among regional companies and their exposure to downstream portions of the AI supply chain. He expects this conviction to hold as long as profit expansion stays strong. "The scale of AI capex buildout is enormous," he said. "That means tremendous demand for semiconductor components, cooling equipment, cable interconnects, optical gear, power supplies, construction machinery, metals, and everything else needed to build out data centers."
The fund is also bullish on the biotech and life sciences sector, an area where Pimco has steadily increased exposure over the past 18 months. "Part of the earnings estimate upgrades reflect increased M&A activity in the industry, as large biotech firms try to diversify their drug pipelines," Sharef explained. "Given developments in AI, there is potential to cure more diseases by applying this technology."
In China, financials represent the fund's largest sector allocation, mainly due to their relatively lower volatility. Sharef is likewise positive on materials stocks. The MSCI China Materials Index has climbed roughly 7.1% over the past month, outpacing most major sectors. After lagging earlier this year, this group has transformed into one of the market's leading gainers amid rising gold and copper prices. "Whether it's data center construction or rare earths, China's resource extraction and materials companies play a significant role," Sharef added.
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