Despite growing skepticism about Wall Street's AI-driven boom, foreign investors' voracious appetite for U.S. stocks suggests the "American exceptionalism" narrative remains strong. Data from the Treasury International Capital (TIC) report – the gold standard for measuring U.S. securities flows – released this week showed record demand for U.S. stocks in May from foreign private sector.

Net purchases of U.S. stocks by foreign private investors reached $120.8 billion in May, up from $85.6 billion the previous month, according to the latest TIC report. This was the second highest inflow on record after November 2024.

"It is still very hard to find evidence of the rest of the world shunning U.S. assets," said Kit Juckes, head of foreign exchange strategy at Societe Generale in London. But there is certainly a major shift underway in the U.S. technology and AI sectors.

Investors are punishing mega-cap companies that spend heavily on AI infrastructure and capital expenditure, while rewarding semiconductor firms that capture a large share of this spending. The S&P 500 Software & Services index has fallen 17% since the start of the year, while the Philadelphia Semiconductor Index has surged 75%.

But the broader picture is familiar: global investor appetite for U.S. stocks, especially tech, remains strong. May was a robust month for Wall Street, with the S&P 500 rising 5% and the tech sector up 16%, so the strong foreign buying may not be surprising. However, the intensity of this buying is striking, especially compared to foreign selling in other global AI revolution leaders, particularly South Korea and Taiwan.

Non-residents are unloading stocks in these countries while continuing to pour massive amounts into the United States. It appears that "fear of missing out" is still very much alive when it comes to U.S. stocks.

Comparing TIC data with foreign flows for South Korea and Taiwan – both AI powerhouses – reveals important aspects. Of course, precise cross-country comparisons are difficult due to differing methodologies and data collection. But a good sense of foreign demand for emerging market assets can be obtained using the Institute of International Finance's (IIF) portfolio flow data for emerging markets.

IIF data shows non-resident investors pulled $27.9 billion from South Korean equities in May. Net outflows rose to $30.5 billion in June, the largest monthly outflow in over 25 years. Meanwhile, non-residents withdrew a net $18.3 billion from Taiwanese equities in June, the second largest monthly outflow on record. The largest outflow was $28.7 billion in March. So far this year, net foreign sales of South Korean stocks total nearly $100 billion, while non-residents have sold a net $20 billion of Taiwanese stocks, according to IIF figures.

South Korean and Taiwanese stock indices are a gauge of market sentiment towards global AI, given their heavy concentration in tech and a handful of mega-cap companies like SK Hynix, Samsung, and TSMC. Both markets have rallied significantly this year but have also seen aggressive selling, with volatility reaching historic levels. Does this mean investors are becoming wary of AI itself? Perhaps, but the volatility may partly reflect the growing presence of highly leveraged local retail investors in these markets.

In any case, these upheavals are unlikely to attract foreign capital back unless there is a significant and sustained correction. This suggests investors wanting to ride the AI momentum may flock to Wall Street. However, there is an important caveat. TIC data is notably lagged, and the U.S. tech sector – including cloud computing giants and chipmakers – saw some turbulence in June, so we will wait to see if that affected foreign demand.

Nevertheless, the latest data currently shows two things: first, the world is still eager to profit from the AI boom; and second, Wall Street, not Asian markets, remains the most attractive and stable destination for global investors.

Economic columnist at Reuters