Local Investors Double Down on AI as Taiwan Equities Eye Fresh Highs

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Structural AI Edge Supports Ongoing Rally

Taiwan’s technology-heavy equity market continues to advance, with few signs of momentum fading, even as global concerns intensify over a potential artificial intelligence bubble. The resilience of Taiwanese stocks highlights strong domestic confidence in the island’s entrenched role in AI hardware, a factor some local investors believe foreign participants have underappreciated.

Investors say Taiwan’s benchmark index is on track to surpass the 30,000-point mark in 2026. That projection comes after a three-year run during which the market has nearly doubled, supported by robust demand for semiconductors that underpin artificial intelligence applications.

While overseas investors have become more cautious about lofty AI valuations, Taiwanese investors have been aggressively adding exposure, viewing the pull of AI as a long-term structural story rather than a fleeting theme.

Taiwan at the Center of GPU and TPU Supply Chains

Analysts note that domestic investors are positioning around Taiwan’s distinctive role as a core node in the AI supply chain. They argue that rising competition among AI chip and computing providers is still likely to flow back into Taiwanese companies, including Taiwan Semiconductor Manufacturing Co (TSMC), described as the world’s largest contract chipmaker.

One major source of unease around AI globally relates to whether Nvidia can maintain its leading position, especially as Google’s tensor processing units (TPUs) are seen as a potentially more cost-efficient rival to Nvidia’s graphics processing units (GPUs). However, market participants point out that, for Taiwan, both sides of this rivalry are beneficial because the island is integral to the production and supply of both GPUs and TPUs, the core components of AI computing.

“Taiwan is a major beneficiary of the AI market,” said Piter Yang, a fund manager of Fuh Hwa Securities Investment Trust Co, citing the advantage of Taiwan being the world’s semiconductor hub.

Supported by optimism over the sector’s future, local investors and the broader market appear largely undisturbed by AI bubble warnings. They also seem less rattled by escalating geopolitical tensions with Beijing, which have often unnerved foreign investors in the past.

Valuations, Earnings, and AI Bubble Debate

The sustained rise in Taiwan’s stock market has been anchored by underlying earnings growth, helping to keep the benchmark’s price-to-earnings ratio at 21. That level is described as below the valuation multiples of the Nasdaq and Japan’s Nikkei, suggesting, in the view of some analysts, that the rally has not significantly inflated overall pricing.

“We are not worried about an AI bubble,” said Li Fang-kuo, chairman of the securities investment arm of food conglomerate Uni-President. “We are comfortable with where the valuations stand.”

Li contrasted the current environment with the conditions during the dot-com boom, emphasizing that several of the so-called magnificent seven companies in the United States report gross margins reaching 70% or more. “So it’s not comparable to the dot-com bubble, when companies were not generating meaningful earnings.”

Strategists at Goldman Sachs echoed that stance. “The current industry context does not constitute a full-fledged bubble,” their strategists said in a research report this month, adding they remain overweight on tech shares.

Still, some concerns remain around the AI theme, particularly around profitability, which could eventually dampen demand for hardware produced in Taiwan. Even so, analysts and investors argue that Taiwan’s critical role in AI supply networks and solid order backlogs provide scope for local technology firms to generate strong cash flows for years.

Forecasts for Hyperscaler Spending and Taiwan Index Levels

Goldman Sachs strategists expect investment by hyperscalers to rise significantly in 2026 and 2027, to $552 billion and $644 billion respectively. Against that backdrop, they project that the broader Taiwan index could reach 30,200 within the next 12 months, implying a 7% upside from current levels.

Uni-President’s Li anticipates that Taiwan’s main index will climb to 30,000 in the first half of next year, driven by gains in TSMC, Foxconn, Elite Material, and other companies tied directly to the AI supply chain.

“Looking ahead to 2026, the structural demand story around AI and high‑end semiconductors remains intact, which suggests the sector can continue to be a key beneficiary over the long term,” said Gina Kim, portfolio manager for emerging market equities at Nordea Asset Management in Singapore.

Foreign Outflows Contrast With Local Optimism

Taiwanese equities have repeatedly set record highs during the year and are up 22% in 2025, matching the performance of the tech-heavy Nasdaq index.

However, Taiwan has trailed South Korea’s Kospi, Hong Kong’s Hang Seng, and Japan’s Nikkei when compared with other top-performing major Asian markets this year.

This performance has occurred in spite of pronounced selling by offshore investors. Exchange data show that foreign investors have sold a net T$533.8 billion worth of Taiwanese shares so far this year, following net outflows of about T$695.1 billion in 2024.

Analysts attribute the withdrawals to trade-related uncertainties, worries about AI-related risks, and profit-taking after strong gains. Even so, they underscore that overall sentiment on Taiwan remains constructive.

HSBC strategists, writing in a note this month, highlighted how concentrated many regional portfolios have become. They said the average Asian portfolio holds 10% in a single stock – TSMC – and advised clients to diversify beyond heavily owned AI names.

“We remain confident that Taiwan is an irreplaceable part of the AI supply chain,” said Kieron Kader, associate portfolio manager at London-based asset manager Alquity. “The ecosystem’s proximity to TSMC creates a competitive moat that is very difficult to replicate.”