Ignoring AI bubble fears, investors bet Nvidia and Google will fuel Taiwan stocks to record

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By Faith Hung and Rae Wee

TAIPEI/SINGAPORE, Dec 12 (Reuters) – Taiwan’s tech-heavy stocks show few signs of slowing a rally even as AI bubble worries cast a shadow over global markets, underscoring home-grown confidence in the structural advantages in AI that foreign investors may have overlooked.

Taiwan’s benchmark index is poised to breach a record 30,000 points in 2026, investors say, extending a three-year surge that has seen the stock market nearly double as the island rides a wave of demand for chips that power artificial intelligence.

While foreign money worries about stretched AI valuations, Taiwanese investors have enthusiastically ploughed into the market.

Analysts say domestic investors are betting on Taiwan’s unique position as the lynchpin of an AI supply chain, where even increasing competition in the sector would only benefit Taiwanese firms, including TSMC, the world’s largest contract chipmaker.

One major focus of anxiety around AI comes from uncertainty about Nvidia’s ability to sustain its market dominance, with Google’s tensor processing units (TPUs) emerging as a potentially more cost-effective alternative to Nvidia’s graphics processing units (GPUs).  

But it’s a win-win scenario for Taiwan because the island is essential to supply chains of both the GPU and TPU, the building blocks of AI computing power.    

“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.

And for now, as a promising future fuels optimism, Taiwan markets and local investors seem relatively unfazed by the AI bubble fears, just as they remain calm in the face of rising geopolitical tensions with Beijing that have often spooked foreign investors. 

NO AI BUBBLE WORRIES FOR NOW

Gains in Taiwan’s market have also been underpinned by earnings growth, leaving it with a reasonably steady price-to-earnings ratio of 21, below that of the Nasdaq and the Nikkei, meaning the rally has not made stocks more expensive.

“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 pointed out that several of the magnificent seven companies in the U.S. have gross margins of as much as 70% or higher. “So it’s not comparable to the dot-com bubble, when companies were not generating meaningful earnings.” 

Goldman Sachs shares the view. “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.

To be sure, there are other worries around AI, chiefly profitability which could eventually weaken demand for the made-in-Taiwan hardware.

But Taiwan’s importance in the supply chain and the strength of the order book means the island’s tech firms still have more years to rake in cash, analysts and investors say. 

Goldman strategists expect hyperscaler investment to grow meaningfully in 2026 and 2027 to $552 billion and $644 billion. They predict the broader Taiwan index could hit 30,200, a 7% upside from the current levels, in the next 12 months.  

Uni-President’s Li expects Taiwan’s main index to hit 30,000 in the first half of next year, led by TSMC, Foxconn, Elite Material and other AI supply chain players.

“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.     

FLEEING FOREIGN INVESTORS 

Taiwan stocks have hit record highs throughout the year and are up 22% in 2025, keeping pace with the tech-heavy Nasdaq index. 

They however lag behind South Korea’s Kospi, Hong Kong’s Hang Seng and Japan’s Nikkei among best-performing major Asian bourses this year. 

That has come despite selling by foreign investors, who have sold a net T$533.8 billion ($17 billion) worth of Taiwanese shares so far this year, following net outflows of about T$695.1 billion in 2024, exchange data showed.

The exodus has been driven by trade uncertainties, some worries on AI risks and investors looking to lock in profits, analysts say, pointing out that sentiment remains upbeat on Taiwan. 

The average Asian portfolio holds 10% in one stock – TSMC, HSBC strategists said in a note this month as they advised investors to diversify beyond crowded AI bets. 

“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.”

(Reporting by Faith Hung in Taipei; Tom Westbrook, Rae Wee and Ankur Banerjee in SingaporeEditing by Shri Navaratnam)