Historical AI Adjustments During Taiwan Stock Market Crashes: Bubble or Revaluation?

Black Swan Attack: A Dramatic Day of Losing 28,000 Points

Taiwan’s stock market today staged a rapidly changing scene. The Weighted Index opened with a sharp drop to 27,684 points, marking the eighth largest decline this year. The low of 27,684 points triggered investors’ nerves—breaking through the year-end milestone of 28,000 points. This is not merely a technical correction but a chain reaction ignited by U.S. tech stocks.

Last Friday’s seismic shift on Wall Street had a clear signal: after Broadcom’s earnings report, it plunged 11.43%, and NVIDIA also fell over 3%. These signals propagated to Taiwan, where the large-cap stock TSMC’s ADR dropped 4.2%. The stock opened sharply lower by 30 NT dollars to 1,450, breaking below the monthly moving average. The stock king, Wistron NeWeb, at 6,590 NT dollars, faced intense selling pressure. Ultimately, bulls and bears were evenly matched, serving as a barometer of market sentiment.

The Real Logic Behind Taiwan’s Market Collapse

Interestingly, the market’s decline was not as severe as expected. This reflects that investors still recognize—AI’s core demand has not diminished. The latest data from Broadcom’s earnings report is crucial: AI-related orders over the next 18 months have exceeded $73 billion, with demand still strong. This figure should have supported the stock price but instead triggered selling.

The core issue lies in a profound shift in market valuation logic. Over the past two years, the rise of AI concept stocks was straightforward: as long as they carried the AI label, they could gain huge valuation premiums through “order growth.” Now, Wall Street analysts are asking a more piercing question—can these orders translate into real profits?

Among Oracle’s $523 billion in orders, $300 billion directly come from OpenAI. But the market perceives a danger signal: does OpenAI truly have the capacity to “absorb” these orders? Oracle’s new co-CEO hurriedly clarified that even if OpenAI defaults, the company can reallocate infrastructure “within hours.” This defense instead exposes the risk—why emphasize contingency plans for default?

Capital Diversification: Where Are the Safe Havens?

The capital flow today tells another story. Oil, electricity, and electrical equipment stocks rose 3.09%, network communication and shipping stocks increased 1.33% and 1.25%, respectively, while semiconductor stocks fell 1.8%, and other electronics stocks declined 2.15%. Capital has not fled the market but has shifted strategically.

They are moving away from the crowded midstream AI supporting sectors toward assets with clear cash flow, valuations not excessively inflated, and less sensitive to interest rate environments. This shift precisely indicates that investors are not rejecting AI industries but are seeking certainty amid the differentiation within the AI supply chain.

In contrast, Google demonstrates a different advantage. Its expected capital expenditure in 2026 accounts for 56% of operating cash flow, the most efficient among giants. More importantly, the total cost of ownership (TCO) for Google’s TPUv7 is about 44% lower than the GB200 server from Intel. This cost advantage from vertical integration creates a moat that is difficult for competitors to replicate.

The Risks of the Year-End Triple Test

Taiwan’s stock market’s short-term difficulties are not limited to this. During this week’s “Super Central Bank Week,” a 1-rate hike by the Bank of Japan could lead to the exit of carry trade, directly impacting foreign investment in Taiwan stocks. Movements in U.S. indices have always influenced foreign capital flows; last Friday’s plunge naturally triggered today’s correction in Taiwan’s market.

More challenging is the systemic change in the life insurance industry. IFRS 17 and TW-ICS will fully align next year, meaning that if listed companies’ stocks are classified as FVOCI, even if they sell at a profit, they cannot be recognized in the income statement but only in capital reserves. This cuts off the previous routine of insurers beautifying EPS and distributable earnings by disposing of stocks. As a result, insurers are eager to convert accumulated unrealized gains into realized profits before the system switch. This is not a negative view of fundamentals but a passive adjustment forced by the new regulations.

Stock Resilience: Differentiation Becomes the Norm

Amid the market plunge, Precision Test (Jingce) surged over 8% to 2,370 NT dollars, setting a new high. With consolidated revenue of NT$4.415 billion in the first 11 months, up nearly 40% year-over-year, the market is optimistic about maintaining double-digit growth for the full year. The resilience of this company stems from its diversified customer base—benefiting from the inventory momentum of next-generation smartphones and high-end tablets.

The stock king, Wistron NeWeb, also demonstrated resilience. Benefiting from a smoother supply chain, its shipment performance exceeded expectations. It revised its operational outlook upward twice this season and expects 2025 to be the peak year, with order visibility extending into the second quarter of next year. Although it briefly dipped to 6,590 NT dollars this morning, strong support quickly emerged, with bulls and bears evenly matched.

These stocks’ performances indicate the future direction of differentiation in Taiwan’s stock market.

Bubble Burst or Market Maturity?

From a medium- to long-term perspective, this correction in the AI sector is not a bubble burst but a necessary step toward market maturity. The era where simply touching the AI concept could easily generate profits has ended.

In the future, a collapse-like correction in Taiwan’s stock market will become normal—yet this is a healthy filtering mechanism. Companies that rely solely on the “AI concept,” have a single customer structure, and lack profitability support will face ongoing valuation compression. Conversely, companies with core technologies, stable profitability, diversified customer bases, and clear growth paths will stand out through rational market selection.

The market is shifting from “buying stories” to “focusing on profits,” from “looking at order scale” to “focusing on order certainty.” Although this transition causes short-term volatility, in the long run, it points investors toward the right direction—seeking companies with real strength to support their valuations, rather than just concept stocks.