2025 Taiwan Stock Market Year-End Review and 2026 Outlook: Can the AI Boom Continue?

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In 2025, market volatility significantly intensified, with geopolitical tensions and tech industry dynamics becoming key influencing factors. Despite this, artificial intelligence (AI) remains the long-term engine driving the market. Looking ahead to 2026, this boom is expected to continue in a new form of “technology deepening” and “application implementation.”

A recent survey indicates that Taiwan stocks have become investors’ top choice for future asset allocation, showing that market confidence remains solid.

Key Takeaways

• In 2025, AI was the main driving force in the Taiwan stock market, but market volatility was high.
• In 2026, AI technology will develop more deeply and be widely applied in business and personal devices.
• Investors should adopt a “core-satellite” strategy, allocating most funds to AI semiconductors and a small portion to high-dividend and domestic demand stocks.
• Besides AI, investors can also focus on cyclical recovery in traditional industries, such as machinery.
• Geopolitical risks and high valuations in some AI stocks are challenges for the market in 2026.

Reviewing 2025: Taiwan Stock Volatility Driven by AI

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The market trend in 2025 fully illustrated opportunities and volatility driven by a single strong theme. Macro environment, industry dynamics, and market sentiment intertwined, jointly shaping a complex pattern of Taiwan stocks rising strongly early, declining later, and regaining resilience at year-end.

Macro Background: Interest Rate Policy and Economic Data

The global funding environment saw an important turning point in 2025. The US Federal Reserve (Fed) started a rate cut cycle, lowering the federal funds rate to the 4.00% to 4.25% range, effectively easing market liquidity pressure. In Taiwan locally, basic wage increases and salary adjustments for military, civil servants, and teachers provided solid support for domestic consumption. Strong economic fundamentals also gave market confidence, with data showing:

• Taiwan’s economy achieved 7.64% year-on-year growth in GDP from July to September.
• This growth rate was the second highest in nearly four years, showing the economy’s strong vitality.

Industry Core: Strong AI Theme and Differentiation

AI was the absolute investment main axis throughout the year. From supply chain data, AI-related business contributions were extremely prominent. Taking foundry leader TSMC as an example, its third-quarter earnings report clearly revealed this trend:

• High-Performance Computing (HPC): Mainly composed of AI chips, revenue share reached 57%.
• Smartphones: Revenue share was 30%, significantly behind AI.

However, as the second-half rally progressed, market differentiation signs began to appear. According to Bloomberg reports, TSMC’s October revenue year-on-year growth slowed to 16.9%, the lowest since February 2024. This data triggered market warnings about slowing tech momentum, with some over-risen AI concept stocks facing correction pressure.

Market Trend: From High Open Low Close to Resilience Display

Early in the year, the market surged under the AI boom drive, with the index repeatedly hitting new highs. But as tech stock valuations reached historical highs, coupled with concerns about potential peaking growth momentum, the market showed a “high open low close” trend in mid-year, with heavy profit-taking selling pressure. Despite this, the market displayed strong resilience at year-end. This mainly benefited from Taiwan’s unshakable manufacturing barriers in the global semiconductor industry. Investors recognized that no matter how terminal applications change, Taiwan’s advanced manufacturing capability is always core to AI development, providing solid bottom support for the market.

Outlook for 2026: AI Deepening and Diversified Opportunities

Bidding farewell to 2025 market shocks, the AI narrative in 2026 will shift from “concept-driven” to “value realization.” Investors’ focus will no longer solely be on hardware arms races but more on how AI technology deepens and how commercial applications truly land. This wave will extend from cloud servers to terminal devices in everyone’s hands, bringing new growth opportunities to related industry chains.

Core Driver: AI Technology Iteration and Application Expansion

In 2026, the core driving forces of AI development will present two major trends: Sustained upgrades in cloud hardware and the commercialization of terminal applications

First, in cloud and edge computing fields, technology iteration speed has not slowed. To solve issues like data latency, privacy security, and network dependency, AI computing is accelerating migration to data sources (i.e., edge devices). This trend drives hardware architecture innovation:

• Hardware Decoupling: Through dedicated chip collaboration, breaking traditional monolithic designs to improve efficiency.
• Optical Communication: Based on next-generation interconnect technologies like microLED, alleviating heat dissipation bottlenecks in high-density data center racks.
• New Architectures: Development of optical-based chips and new memory technologies paving the way for faster, more sustainable AI infrastructure.

Second, AI will fully enter personal computing devices, ushering in the true terminal AI era. The market widely expects the 2026 International Consumer Electronics Show (CES) to be a key node.

• AI PCs: Qualcomm, Intel, and AMD are expected to launch second-generation NPU processors, with competition focus shifting from pure computing power (TOPS) to actual application performance and battery life. By then, laptops capable of running complex large language models (LLMs) completely offline will emerge, making private, secure personal AI assistants a reality.
• AI Smartphones: Benefiting from breakthroughs like solid-state batteries, the first commercial products are expected to appear, achieving up to a week’s battery life, providing longer power for AI applications.

Profit Prospects: Support from Enterprise Profit Growth

Technological progress ultimately needs to translate into enterprise profits. Looking ahead to 2026, widespread AI application implementation will become key support for enterprise profit growth. Although Fubon Investment Trust estimates 2025 enterprise profit year-on-year growth at 15%, with AI commercialization accelerating, this growth momentum is expected to continue.

According to industry reports, by 2026, over 80% of enterprises will integrate generative AI models or APIs, or deploy generative AI-based applications, with the fastest adoption in healthcare, manufacturing, and IT industries.

This widespread application penetration means more diversified profit sources.

• Finance and Retail: In fintech, AI will manage 80-90% of customer queries through hyper-personalized services. In retail, autonomous AI sales agents will dynamically adjust promotions based on customer behavior, with AI-driven personalized recommendations becoming mainstream.
• Automation Integration: Nearly 60% of organizations plan to integrate AI with robotic process automation (RPA) by 2026, significantly improving operational efficiency.
• Model Specialization: AI development will shift to smaller, more specialized language models (SLMs), providing lower cost, faster response, and higher accuracy solutions in specific fields like finance and healthcare, accelerating commercial monetization.

Potential Risks: Geopolitical and Valuation Challenges

While optimistic, investors must face potential risks in the 2026 Taiwan stock market. Geopolitical uncertainty and high tech stock valuations are two swords hanging over the market.

First, geopolitical risk remains the biggest variable. The US-China strategic competition pattern has not changed; any sudden event could impact market sentiment.

Second, valuation correction pressure cannot be ignored. After two years of rises, many AI concept stocks’ valuations are at historical highs. Taking industry leader TSMC as an example, its price-to-earnings ratio (P/E) reached 31.22 times at the end of 2025. Although high growth expectations can support high valuations, once future performance growth falls short of expectations, the market may see significant profit-taking selling pressure, triggering stock price corrections. Therefore, while chasing the AI boom, prudently assessing valuation levels is a required course for 2026 investment layout.

Layout for 2026: Taiwan Stock Investment Core and Satellite Strategy

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Facing a 2026 market with both opportunities and challenges, investors need an investment framework that balances offense and defense. The “core-satellite” strategy thus becomes an ideal choice. This strategy allocates most funds to stable growth “core” assets while allocating a small portion to high-risk or specific theme “satellite” assets to achieve risk diversification and return enhancement.

Modern digital asset management tools, such as Biyapay, provide convenience for practicing such strategies. Investors can efficiently manage a diversified portfolio including core AI stocks, satellite high-dividend stocks, and even other alternative assets through such platforms, flexibly responding to market changes.

Core Allocation: Focus on AI Semiconductor Industry Chain

The core part of the portfolio should focus on industries with long-term structural growth momentum. In 2026, the AI semiconductor industry chain remains the undisputed top choice. Rapid progress in computing hardware, sustained cloud infrastructure expansion, and popularization of open-source frameworks jointly form the industry’s solid growth foundation. Investors should focus on the following areas:

• AI Chips: The brain driving all artificial intelligence applications.
• 5G Connectivity: Providing high-speed data transmission for massive IoT devices and AI applications.
• Electric Vehicles (EVs): Semiconductors play key roles in autonomous driving and battery management systems.
• IoT Devices: Popularization of edge computing will explode demand for low-power chips.

In specific stock selection, industry leading enterprises are the cornerstone of core allocation. Analysts generally believe NVIDIA and TSMC will continue to maintain leadership in 2026. NVIDIA is fully delivering its huge AI accelerator orders, with its CEO describing the AI era as a fundamental platform shift, indicating sustained investment in its ecosystem.

At the same time, as the world’s largest and most advanced chip foundry, TSMC’s core role in the semiconductor ecosystem is increasingly critical. It produces chips for top companies like NVIDIA and AMD, with its 3nm process in high demand due to AI applications in 2025. The company is actively expanding advanced packaging capacity and advancing 2nm factory construction, with technological barriers hard to surpass.

Satellite Allocation: High-Dividend and Domestic Demand Defensive Stocks

The goal of satellite allocation is to provide stable cash flow and defensive capability for the portfolio to hedge volatility in core assets. High-dividend stocks are ideal tools to achieve this. When selecting high-dividend targets, investors can reference an effective screening standard:

• First, investment targets should be stocks listed on the Taiwan Stock Exchange (TWSE) or GreTai Securities Market (TPEx).
• Second, stocks must pass liquidity screening to ensure smooth trading.
• Then, ranked in descending order by dividend yield.
• Finally, select top-ranked stocks (e.g., top 40) and weight by dividend yield and liquidity.

Besides high-dividend stocks, domestic demand defensive stocks benefiting from wage growth and consumption stability, such as retail, food, and some financial services, are also quality choices for satellite allocation. These companies’ businesses are relatively unaffected by international economic cycles, providing protection during market turbulence.

Cyclical Recovery: Seeking Opportunities in Non-AI Sectors

Smart investors always seek opportunities in the market that are not yet fully priced. In 2026, as the global economy gradually normalizes, some non-AI cyclical sectors begin to show recovery signs, providing possibilities for diversified layout.

Economic data shows Taiwan’s recovery is becoming more balanced. For example, benefiting from semiconductor companies expanding capacity, machinery industry prosperity signals have improved from contraction to slow growth. However, investors also need to note that chemicals, plastics, and steel industries still face huge pressure from mainland China competitors.

Shipping is a typical cyclical sector. Although global consensus predicts 2026 container demand growth of 3.0%, fleet capacity growth is expected to reach 3.6%, leading to excess capacity. This means freight rates will face downward pressure, challenging shipping companies’ profitability. This is good for shippers but means shipping stock investors need prudent assessment.

So, how to discover undervalued cyclical opportunities? Cyclically adjusted price-to-earnings ratio (CAPE) is an effective valuation tool. It assesses long-term investment value by smoothing past ten years’ earnings fluctuations.

Data shows the current Taiwan stock CAPE ratio remains below its historical average, implying the market overall is not overvalued, with potential valuation repair investment opportunities hidden in some cyclical sectors. Investors should closely monitor traditional industries benefiting from export recovery, New Taiwan dollar exchange rates, and US rate cut cycles.

Looking ahead to 2026, investors should continue embracing the long-term AI trend. Taiwan, with its world-class semiconductor ecosystem, remains a pillar of global AI development, with this positive momentum expected to continue.

Investment mindset lies in maintaining prudent optimism. Investors should use flexible “core + satellite” allocation to seize AI mainline opportunities while building resilient portfolios with defensive sectors to cope with market volatility.

Investors should maintain firm confidence after understanding risks. During market callbacks, focus on consumption defense and healthcare sectors, seeking layout opportunities for Taiwan stocks’ long-term growth.

FAQ

Is the 2026 AI boom a bubble?

The 2026 AI boom will shift to technology deepening and application implementation, with solid industrial foundations. But some individual stocks have high valuations, with correction risks. Investors should focus on enterprises’ actual profitability, not just chasing concepts.

Besides AI, what investment opportunities are there in 2026?

Investors can focus on defensive sectors. For example, high-dividend stocks provide stable cash flow. Domestic consumption stocks benefiting from wage growth also have resilience. Some cyclical recovery traditional industries, like machinery, are also starting to show opportunities.

In the “core-satellite” strategy, how should assets be allocated?

This strategy has no fixed proportion; investors’ risk tolerance is key.

Generally, most funds (e.g., 60-80%) can be allocated to stable core AI assets. Remaining funds can be flexibly allocated to satellite assets to diversify risk and capture other thematic opportunities.