Reevaluation of the Industry Chain Behind Taiwan's Stock Market Adjustment — From AI Investment Boom to Value Rationality

The Taiwanese stock market staged a “from frenzy to rationality” drama overnight. Last Friday, the sharp decline in U.S. tech stocks triggered a chain reaction in Taipei’s stock market like dominoes falling. After a gap-down open, the weighted index accelerated downward, plunging more than 500 points during the session to a low of 27,684, marking the eighth largest decline this year and breaking the 28,000-point psychological barrier.

The most immediate victims of this correction are the electronic blue chips. TSMC ADR tumbled 4.2%, and domestic shares dropped 30 NT dollars to 1,450 NT dollars, breaking below the monthly moving average. The stock king, Foxconn, faced fierce battles around 6,600 NT dollars, briefly dipping to 6,590 NT dollars before seeing buying support. The top-tier “golden stocks” (priced above 3,000 NT dollars) were almost entirely in the red, a rare sight in Taiwan stock market history.

The Real Logic Behind Valuation Reassessment

The seemingly abrupt stock price plunge actually stems from a fundamental change in market expectations for AI investments. On the surface, it’s the volatility of U.S. tech stocks—Broadcom plummeted 11.43% on earnings, and NVIDIA also fell more than 3%—but deeper shifts are worth noting.

This is not a crisis signal for AI demand. Broadcom’s earnings explicitly state that AI-related orders over the next 18 months have exceeded $73 billion, and market perception of industry prospects remains unchanged. What has truly changed is investors’ evaluation dimensions.

Over the past two years, the “AI concept” alone was enough to drive valuation increases—investment logic was simple and crude—just label something as AI, and order growth would translate into stock price gains. But when industry giants like Oracle and Broadcom release earnings reports, the market begins to question a long-ignored issue: can these huge orders be converted into actual profits?

Broadcom’s transformation signals are especially critical. The company is shifting from “selling high-margin chips” to “selling system solutions,” which could pressure gross margins. Oracle holds $523 billion in orders, of which $300 billion come from OpenAI, but the market is beginning to doubt the certainty of these orders’ realization.

Long-term investment return cycles and lower-than-expected profit margins make the market cautious about companies deeply tied to OpenAI—including Oracle, SoftBank, Microsoft, and NVIDIA—whose stock prices have been under pressure since late October.

Capital Flows Reveal the Market’s True Sentiment

It’s worth noting that today’s correction does not signal a large-scale withdrawal of funds from the market. From the sector performance, electric power and energy stocks rose 3.09% against the trend, networking and shipping stocks increased 1.33% and 1.25%, respectively, while glass stocks fell 2.59%, and other electronics stocks declined 2.15%.

This phenomenon indicates a reallocation of capital—flowing from crowded AI midstream supporting sectors toward assets with clear cash flow, valuations not yet excessively inflated, and less sensitive to interest rate environments. The market is not denying the prospects of the AI industry but is seeking more certain investment anchors amid industry differentiation.

The Winners and Losers in Industry Segmentation

Not all companies are dull in this correction. ASE Technology (Advanced Semiconductor Engineering) performed remarkably well, with shares soaring over 8% to a new high of 2,370 NT dollars. Benefiting from the inventory buildup momentum for next-generation smartphones and high-end tablets, its consolidated revenue for the first 11 months reached NT$4.415 billion, up nearly 40% year-over-year. The market is optimistic about maintaining double-digit growth for the full year.

The stock king, Foxconn, also demonstrated resilience. Supported by smooth supply chains and better-than-expected shipments, the company revised its quarterly outlook upward twice, optimistic about 2025 being the peak year, with order visibility extending into the second quarter of next year.

These two cases reflect future industry differentiation trends: companies relying solely on “AI concepts,” with single customer structures and lacking profit support, will face ongoing valuation pressure; whereas companies with core technologies, stable profitability, diversified customer bases, and clear growth paths will stand out through market rationality.

Year-End Variables and Market Tests

Currently, the Taiwan stock market faces multiple uncertainties stacking up. The volatility of U.S. indices directly influences foreign capital allocation, and last Friday’s plunge naturally triggered today’s chain reactions. More importantly, the upcoming implementation of IFRS 17 and TW-ICS accounting standards for the insurance industry next year may induce active or passive adjustment selling.

The logic behind the insurance sector’s adjustment warrants deep analysis. Under the new system, if stocks are classified as FVOCI, even high-priced sales in the future cannot enter profit and loss but only go into capital reserves, effectively cutting off the previous practice of beautifying EPS through stock disposals. Therefore, insurers tend to convert accumulated unrealized gains into realized profits before the system switch.

This week’s “Super Central Bank Week,” with the Bank of Japan’s rate hike expectations, may also lead to the unwinding of carry trades, further amplifying market volatility.

From Bubble Panic to Industry Maturity

When the market describes this correction as a “bubble,” it is actually a misreading of the true market signals. This is not a bubble burst but a necessary stage in industry maturation.

From a medium- to long-term perspective, the real watershed lies in the substantive competitiveness of companies. Google controls the most scarce resources in OpenAI: cash flow and a complete industry chain. Its expected capital expenditure in 2026 will account for 56% of operating cash flow, the most efficient among giants. The cost advantage brought by this vertical integration is significant—Google’s TPUv7’s TCO (total cost of ownership) is about 44% lower than NVIDIA’s G8X servers.

In the future, AI sector differentiation will become the norm. Companies with core technologies, stable profitability, and diverse customer bases will achieve steady growth through market rationality. Conversely, those lacking substantial fundamentals may face ongoing valuation adjustments.

This correction in Taiwan’s stock market is essentially a process of the market returning from frenzy to rationality, and a necessary price for investors to learn to distinguish between “stories” and “fundamentals.”