Taiwan’s technology companies outpaced traditional sectors by swiftly penetrating the global artificial intelligence (AI) supply chain to occupy an indispensable place in the industry, breaking away from the slim-profit-margin business models of providing manufacturing services on a contract basis. That could explain why the tech-heavy TAIEX became an outperformer among its global peers.
The drastic transformation gave a strong lift to the TAIEX, which has been showing outstanding performance since last month, rallying about 23 percent with daily turnover hovering at a record NT$1 trillion (US$31.6 billion) since the middle of last month. The TAIEX has risen to the world’s sixth-largest stock market with market value soaring to more than US$4.47 trillion, overtaking Canada, Bloomberg reported on Tuesday last week.
Local AI hardware suppliers from chips and power units to servers are among the biggest beneficiaries from this AI mega-trend, including Taiwan Semiconductor Manufacturing Co (TSMC) and Hon Hai Precision Industry Co, which supplies chips and server racks to Nvidia Corp. The stock prices of TSMC and Hon Hai have jumped about 21 percent and 22 percent respectively since the beginning of last month.
TSMC’s gross margin climbed to 66.2 percent last quarter, hitting a historical high. Hon Hai’s operating margin, which is a better gauge for electronics manufacturing service providers, improved to 3.28 percent last year from more than 2 percent in previous years.
MediaTek Inc, the world’s biggest smartphone chip supplier, has made good progress in tapping into the AI industry in the third pivot in the company’s history. The stock increased 115 percent in just a month compared with its closing price on April 1, after securing its first AI chip design project from Google, while more AI application-specific IC (ASIC) projects are in the pipelines from other cloud service providers.
MediaTek aims to snare 10 to 15 percent of the global AI ASIC market next year. The market size should balloon to between US$70 billion and US$80 billion by next year, rather than 2028, MediaTek forecast last week. The chip designer said the new AI business would grow its operating margin, which improved to 15.3 percent last quarter sequentially.
The strong performance of those AI-related stocks is supported by strong fundamentals amid AI infrastructure investment sprees. The world’s eight largest cloud-service providers including Google, Amazon Web Services, Meta, Microsoft, Oracle and their Chinese counterparts are to increase capital expenditures by about 61 percent annually this year on AI servers and related infrastructure, reaching US$710 billion this year, market researcher TrendForce Corp said.
Explosive demand for high-performance and power-efficient AI chips and AI hardware has helped boost Taiwan’s GDP growth to 13.69 percent annually in the first quarter of this year, the fastest pace in about 39 years, according to the Directorate-General of Budget, Accounting and Statistics (DGBAS). The growth outpaced its forecast by 2.23 percentage points, DGBAS said.
That could pave the way for the nation’s economy to expand beyond the 7.71 percent annual growth this year that the government agency projected in February. UBS Group AG has increased its forecast for Taiwan’s GDP growth to as high as 8.6 percent this year, thanks to strong AI-driven exports.
Not all people feel the benefits of the exceptionally strong GDP and exports growth. The expansion is generally limited to the electronics sector and even then, only to some AI-related firms. Traditional sectors including petrochemicals, steel and cement still struggle to adopt green energy as they cope with global carbon emission requirements, US tariffs and price competition as well as labor shortages. The prospects of those industries remain dismal this year, attributable to the unresolved US-Israel war against Iran that led to an energy supply crisis.
Such uneven development might look unavoidable and is a formidable issue to address. The government should not turn a blind eye to the unbalanced development in the nation’s economy. The government has made the AI industry a priority through 2028, with high hopes of helping businesses solve labor constraints and enhance the nation’s competitiveness by pushing for adoption of AI technology in as many industries as possible. It is clear that most private businesses are still fumbling with AI technology to improve their business or operational efficiency on a large scale, not to mention high ownership costs. The traditional sectors still need the government’s assistance to navigate the painful transformations.
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