Volatility continues to haunt the local stock market as, after a weak performance on Monday, the TAIEX yesterday bounced back 407.93 points, or 1.54 percent. That followed a rally of 846.24 points, or 3.18 percent, on Thursday last week and a plunge of 991.42 points, or 3.62 percent, on Friday.
The robust demand for artificial intelligence (AI) infrastructure deployment and the financial performance of companies in the AI supply chain are apparently not enough to convince investors that there is no near-term risk of a bubble bursting.
Shares of Taiwan Semiconductor Manufacturing Co, Nvidia Corp’s major chip supplier, yesterday surged 2.91 percent to NT$1,415, after plummeting 4.81 percent on Friday and another 0.7 percent on Monday. The movements of the chipmaker’s stock price have yet to match its strong revenue growth forecast of 35 percent for this year, driven by demand for AI and high-performance-computing chips.
Hon Hai Precision Industry Co, the world’s biggest server manufacturer and one of Nvidia’s major suppliers, yesterday saw its stock price sink for a third consecutive trading session, while Wistron Corp, another Nvidia server supplier, recouped some gains yesterday as its stock price inched up 0.36 percent.
In the US, Nvidia reported third-quarter earnings that beat Wall Street’s expectations, driven mostly by its data center business. CEO Jensen Huang (黃仁勳) rejected the notion that an AI bubble is forming.
Investors fear that irrationality in the AI boom — an investment frenzy over data centers and computing power, as well as overvaluations of tech stocks — would trigger a similar stock market rout to 2002 when the dotcom bubble burst, leading to rapid sell-offs that scrapped 75 to 80 percent off the market value of the NASDAQ Composite.
The world’s four largest hyperscalers alone — Microsoft, Amazon, Meta and Google’s Alphabet — are expected to spend a combined US$350 billion this year, and Goldman Sachs estimates that global AI-related infrastructure spending could reach US$4 trillion by 2030, Reuters reported. However, there are no guarantees of big returns.
The IMF last month warned that the risk of a sharp market correction has increased, as the stock valuations of AI-focused tech firms appear stretched. Its view aligned with other financial institutions, such as the Bank of England, which last month warned about a potential reversal of interest in AI stocks.
However, some industry experts argue that the AI boom is different from the dotcom bubble, given its profit-making models and electricity capacity growth constraints. Former Intel CEO Pat Gelsinger has said that the risk is not imminent, as global power capacity grew about 3 or 4 percent per year in the past few years, below the alarm level of 5 percent, and it is time-consuming to expand power capacity.
No matter how small the risk, Taiwan should brace for potential stock market shocks if an AI bubble pops, as its export-oriented economy is heavily reliant on chips and related hardware. Last quarter, Taiwan’s economy expanded 7.64 percent, beating the government’s August forecast by 4.73 percentage points thanks to surging global demand for AI applications and next-generation tech products. Exports rose 36.5 percent year-on-year last quarter, surpassing estimates by 7.4 percentage points, led by shipments of advanced semiconductors, AI servers and next-generation smartphones. Semiconductor firms and AI-related hardware stood out, while most sectors faced muted growth amid US tariffs and escalating global competition.
Taiwan’s semiconductor and electronics industry showed its resilience during the COVID-19 pandemic, but investor confidence might not be as strong and could be shaken easily due to changes in foreign investor interests. The government must make sure it has the capability to keep the local financial market in check if investors’ interest in AI stocks turns sour.
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