Why Taiwan’s tech rally is brushing off global AI bubble fears

Taiwan’s equity market continues to move against the prevailing global mood around artificial intelligence.

While investors elsewhere are questioning whether AI valuations have stretched too far, Taiwan’s tech-heavy stocks show little sign of losing momentum.

The contrast reflects a growing divide between foreign caution and local conviction, reports Reuters.

For domestic investors, the focus is less on hype cycles and more on Taiwan’s entrenched role in the global AI supply chain.

That structural positioning, rather than short-term sentiment, is shaping how the market interprets risk and reward.

Taiwan’s benchmark index is expected by investors to breach the 30,000 mark in 2026, extending a rally that has nearly doubled the market over the past three years.

The gains have been powered by sustained demand for chips that enable artificial intelligence, placing Taiwan at the centre of one of the most critical technology shifts in decades.

Supply chain depth over AI hype

A key reason Taiwan’s rally has held up is the belief that its companies benefit regardless of how the AI race evolves.

While global investors worry about whether Nvidia can maintain its dominance, alternatives such as Google’s tensor processing units are emerging as potentially cheaper computing options.

For Taiwan, this competition is not seen as a threat.

The island is essential to the production of both graphics processing units and tensor processing units, which form the backbone of AI computing.

As competition increases, Taiwanese firms stand to gain from higher volumes across multiple platforms.

TSMC, the world’s largest contract chipmaker, remains the anchor of this ecosystem, alongside a wide network of suppliers and materials firms.

Local analysts argue that this makes Taiwan less exposed to single-company risk than other AI-focused markets.

Even if leadership shifts within the AI hardware space, Taiwan’s manufacturing role remains intact.

Earnings keep valuations in check

Unlike some global peers, Taiwan’s market has not seen valuations inflate sharply alongside price gains.

Earnings growth has helped stabilise price-to-earnings ratios, which sit around 21, below those of the Nasdaq and Japan’s Nikkei.

This has reinforced the view that the rally is supported by fundamentals rather than speculation.

Comparisons with the dot-com era are often raised in discussions around AI bubbles.

Investors in Taiwan point out that today’s leading technology firms are generating meaningful earnings, with some US tech giants posting gross margins as high as 70%.

This profitability backdrop has eased concerns that the current cycle mirrors past excesses.

Major investment banks share this assessment.

Recent research from Goldman Sachs described the current AI environment as falling short of a full-scale bubble, with strategists maintaining an overweight stance on technology stocks.

Profitability risks still on the radar

That does not mean risks are absent.

Questions remain around how quickly AI applications can translate into sustainable profits, and whether slower adoption could eventually weaken demand for high-end hardware.

These concerns are part of the broader debate shaping global investor sentiment.

In Taiwan, however, confidence is underpinned by strong order books and the country’s importance within the supply chain.

As per Reuters, analysts say these factors give local tech firms several more years of cash generation, even if growth rates moderate later on.

Goldman Sachs expects hyperscaler investment to rise sharply in 2026 and 2027, reaching $552 billion and $644 billion, respectively.

The bank sees the broader Taiwan index reaching 30,200 within the next 12 months, implying a 7% upside from current levels.

Foreign selling fails to derail rally

Taiwan’s market performance has also stood out because it has advanced despite heavy foreign selling.

Overseas investors have sold a net T$533.8 billion, or about $17 billion, of Taiwanese shares so far this year, following net outflows of roughly T$695.1 billion in 2024, according to exchange data.

Those sales have been driven by trade uncertainty, AI-related concerns, and profit-taking after strong gains.

Even so, Taiwan’s stocks have hit record highs throughout the year and are up 22% in 2025, broadly keeping pace with the Nasdaq.

The market has lagged behind South Korea’s Kospi, Hong Kong’s Hang Seng, and Japan’s Nikkei among major Asian indices, but domestic sentiment remains firm.

Strategists at HSBC noted this month that the average Asian portfolio holds 10% in a single stock, TSMC, and advised investors to diversify beyond crowded AI trades.

Despite that concentration risk, fund managers continue to describe Taiwan as an irreplaceable part of the global AI supply chain, with an ecosystem that would be difficult to replicate elsewhere.

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