- Foreign inflows hit $2.77 bn in one day – the biggest since 2005.
- Six straight days of net buying signal a strategic shift toward AI‑linked chips.
- TSMC now makes up ~45% of the Taiex index, tripling its weight in a decade.
- South Korea’s memory‑chip sector sees outflows while Taiwan enjoys net inflows.
- The Taiwan dollar steadies without heavy hedging, easing currency risk for investors.
Most investors missed the early warning signs – that was a mistake.
Why Taiwan’s Semiconductor Surge Beats the AI‑Scare Trade
When a niche research note warned of “AI‑driven disruption,” many fled risk‑heavy sectors. Yet foreign money raced into Taiwan, betting that the same AI wave will need more advanced silicon than ever before. The logic is simple: AI models consume massive compute, and the only way to supply that compute at scale is through cutting‑edge wafers that Taiwan’s foundry ecosystem perfects.
Sector Momentum: AI Demand Fuels Global Chip Race
Global semiconductor sales are projected to grow at a compound annual growth rate (CAGR) of over 8% through 2028, driven primarily by data‑center AI workloads. This creates a “foundry premium” where fabless designers outsource production to specialists like Taiwan Semiconductor Manufacturing Co. (TSMC). The premium translates into higher utilization rates, tighter capacity, and ultimately, stronger earnings for the host country’s equity market.
Competitor Landscape: South Korea vs. Taiwan in the AI Era
South Korea’s memory‑chip giants—Samsung and SK Hynix—have suffered net outflows comparable to the $2.7 bn inflow into Taiwan. While memory chips remain vital, AI workloads rely more on logic chips (CPU, GPU, ASIC) where Taiwan holds a decisive lead. The divergent cash flows underline a sector rotation: investors are reallocating from commodity‑type memory to high‑margin logic fabs.
Historical Parallel: 2005 Taiwan Rally and Its Aftermath
The last time foreign funds poured a similar amount into Taiwan (December 2005) coincided with the early days of the mobile‑phone boom. That rally ushered in a decade of double‑digit returns for the Taiex, powered by the rise of smartphone‑related semiconductors. The pattern suggests that when Taiwan captures a transformative technology wave, the market reward can be prolonged, not fleeting.
Currency Implications: The Taiwan Dollar’s Quiet Strength
Equity inflows have bolstered the TWD, but the effect is muted because most foreign investors are not hedging currency risk—a behavior more typical of fixed‑income buyers. With limited hedging, the TWD’s stability reduces transaction costs for investors, making the market even more attractive. In practice, this means portfolio managers can maintain exposure without worrying about sharp FX swings.
Investor Playbook: Bull vs. Bear Cases on Taiwan Exposure
Bull Case: AI adoption accelerates faster than supply‑chain constraints can be resolved, TSMC raises pricing power, and Taiwan’s share of global logic‑chip output climbs above 50%. Earnings per share (EPS) surge, the Taiex outperforms regional peers, and the TWD remains a safe haven, delivering both capital appreciation and currency gains.
Bear Case: Geopolitical tensions flare, prompting export controls or supply disruptions. AI demand plateaus, leading to excess fab capacity and margin compression for foundries. A sudden reversal of foreign sentiment could trigger a sharp outflow, pressuring the Taiex and weakening the TWD.
Investors should weigh these scenarios against their risk tolerance, consider diversified exposure through ETFs or ADRs, and keep an eye on policy developments in both Taiwan and the broader AI ecosystem.