Taiwan’s AI Economy Thrives Amid Bubble Worries
In Taipei, real estate agent Jason Sung is confident that home prices near a high-tech industrial park in the northern part of Taiwan’s capital will soon soar due to the influence of computer chip maker Nvidia. The area is designated for Nvidia’s new headquarters in Taiwan, as the company accelerates its expansion on the island. It is poised to overtake Apple, becoming the largest customer of TSMC, the leading contract manufacturer of advanced chips essential for artificial intelligence. Nvidia CEO Jensen Huang characterizes Taiwan as the “center of the world’s computer ecosystem.” It is experiencing a surge amidst the worldwide excitement surrounding AI. The economy experienced an impressive growth rate of 8.6 per cent last year, and there are aspirations to sustain this momentum following the recent trade agreement with US President Donald Trump, which reduced US tariffs on Taiwan from 20 per cent to 15 per cent. “We have been lucky,” said Wu Tsong-min. However, Taiwan’s significant dependence on computer chip manufacturers and various technology firms presents an increasing risk that the AI phenomenon may ultimately prove to be a bubble. “What if the AI bubble is real, and what if its rapid growth pace slows? What’s next for Taiwan?” Wu stated “That’s the question many have been asking.” Escalating tensions with Beijing, which asserts that independently governed Taiwan is part of mainland China’s territory, represent a persistent threat, despite the island’s crucial role in global chip and AI supply chains. Taiwan’s dominance in chipmaking is notable. With a population of approximately 23 million, the island relies significantly on exports. In 2025, they experienced a remarkable increase of nearly 35 per cent year-on-year, with shipments to the US soaring by 78 per cent, driven by the escalating demand for AI.
This success can be attributed primarily to TSMC, or Taiwan Semiconductor Manufacturing Corp., alongside the electronics powerhouse Foxconn, known for producing AI servers for Nvidia and serving as a key supplier to Apple. Taiwan has experienced significant economic transformations, transitioning from predominantly labor-intensive sectors such as plastics and textiles to advanced manufacturing, particularly in semiconductor fabrication. The surge in AI has propelled TSMC into the ranks of the world’s top 10 most valuable companies. Last year, its profit surged by 46 percent, reaching $1.7 trillion Taiwan dollars ($54 billion). The chipmaker is making significant investments in Taiwan as well as in new manufacturing facilities in Arizona, USA. It manufactures over 90 percent of the globe’s most sophisticated chips. Foxconn, formally known as Hon Hai Precision Industry Co., has seen its value double since 2023. The manufacturer of Apple’s iPhone and iPads has expanded its offerings to include AI servers and racks, forming a partnership with OpenAI to provide equipment for AI data centers. Taiwan’s significant dependence on its technology sector indicates that its primary vulnerability lies in the fact that growth will be “very highly contingent on the AI boom and tech race continuing,” stated Lynn Song. Are there ongoing risks of an AI bubble?
Concerns are growing that the current enthusiasm for AI could lead to a bubble, reminiscent of the dot-com crash in 2000, which sent shockwaves through the markets and raised alarms for many in Taiwan. “I’m also very nervous about it,” C.C. Wei, TSMC’s chairman, said when asked about a potential AI bubble during an earnings call in January. “Because we have to invest approximately $52-$56 billion this year. If we did not do it carefully, that will be a big disaster to TSMC for sure,” he stated. “I want to ensure that my customers’ demands are genuine.” In a recent report, analysts from Fitch Ratings stated that AI demand will remain strong at least in the near term. In the longer term, however, the risks “will depend on the evolution of AI, as well as trade and investment policies and the adaptability of Taiwanese firms,” they stated.
Taiwanese electronics company Asia Vital Components, a significant supplier of liquid cooling systems for Nvidia, is making substantial investments in research and development. Spencer Shen, the chairman, remarked that he has observed no indications of a slowdown in demand related to AI thus far. The company is already designing thermal solutions for 2028 AI servers, he stated.”We do not believe this is a bubble,” Shen told in an interview. “AI is propelled by corporations that possess tangible products and substantial cash flows, such as Amazon, Microsoft, Google, and Meta. In fact, AI infrastructure is still in short supply,” Shen stated. “I anticipate that AI will gradually permeate our daily lives and fundamentally alter the way things operate.” Taiwan has a “silicon shield” against Beijing. Some in Taiwan believe that its pivotal role in the technology sector, especially as a maker of computer chips whose main material is silicon, helps to protect the island from attack by communist-ruled Beijing, whose leaders have vowed to reunite the island with the Chinese mainland, by force if necessary. The two governments parted ways in 1949 amidst a civil war. Beijing has intensified its pressure, carrying out military exercises in the vicinity. According to Taiwan officials, exercises in late December featured live rounds landing nearer to the island than previously observed.
Geopolitical factors cast a shadow over the economic outlook; however, many in Taiwan, including former President Tsai Ing-wen, hold the belief that the island’s significance in global chipmaking would dissuade China from launching an attack. The likelihood of an invasion remains uncertain. “Both global tech companies and Chinese industries would suffer from massive disruptions of the chip supply chain,” said Wu of National Taiwan University. Some companies have been identifying contingency scenarios in recent years on how to respond in case of military action by China, said Chen Shin-horng. “We need to understand the potential risk, potential damages to Taiwan,” said Chen. Although a significant portion of its core research and development activities takes place in Taiwan, TSMC has established plants in China, Japan, and the US, and is actively expanding its offshore production in the US, Germany, and Japan. Approximately 65 percent of Foxconn’s manufacturing operations are based in China, with additional factories located in regions including India, Mexico, and the United States. Meanwhile, AVC has been increasing its production capacity in Vietnam. While some have advocated for Taiwan to diversify its economy away from technology to mitigate risks, others contend that reinforcing its position in world-leading technology is the path ahead. “It is our greatest strength,” said Shen of AVC. Some in Taiwan are being left behind. The AI boom has done wonders for Taiwan’s stock exchange, where the benchmark Taiex has climbed nearly 250 percent over the past decade, making many investors rich. Economists have notably revised their projections for Taiwan’s economic growth in 2026, attributing this change to the country’s strong AI-related exports. However, as is the case in other regions, the distribution of wealth is not equitable. Numerous residents of Taiwan express a sentiment of being overlooked.
According to official data, Taiwan’s wealth gap has roughly quadrupled over the past three decades. The compensation for tech workers, particularly chip engineers and managers who are already earning substantial salaries, has surged dramatically. In contrast, other traditional industries, including plastics and machine toolmakers, have experienced slower growth. Experts indicate that the gap may expand as the AI frenzy persists. “It can be tough to make a living,” said Jean Lin. “Many of the younger generation still can’t afford to buy an apartment,” Lin, who wishes to start her own business one day, added. “Many young individuals continue to express that they lack sufficient financial resources.”
