A new perspective on Taiwan stock investment: From value stocks to “small but strong” small and medium-sized enterprises

In the past year, AI has almost dominated the main axis of Taiwan stock investment. Major technology companies are expanding their investment in AI, and funds are also concentrated in large-capitalization stocks. They grasp the mainstream direction and can often keep up with the market.

In the stage of slowing profit growth, funds are expected to spread from a single weight axis, and high-quality companies with independent growth momentum will be more attractive.

By 2027, the market environment may begin to change. According to Bloomberg News, the annual EPS growth rate of Taiwan stocks is expected to drop from 65% in 2026 to 29%. When overall profits shift from high-speed growth to moderate expansion, the growth differences between companies will receive more attention.

Profit growth shifts gears and supply chain begins to differentiate

AI infrastructure continues to expand, major technology companies are increasing capital expenditures, and business opportunities are gradually extending from large leaders to more supply chain links. The global semiconductor market is expected to grow by 27% in 2027, and the industry momentum has not yet weakened. However, while huge investment brings opportunities, it will also widen the gap between enterprises. Industrial growth does not mean that every company can turn revenue into profits.

As profit growth slows, the market's requirements for fundamentals increase. In addition to revenue performance, profit quality, cash flow and supply chain position will all become important basis for evaluation. Some small and medium-sized enterprises that master key technologies have the opportunity to receive more attention.

Small capitalization depends on growth flexibility

The small share capital itself is not a reason for the increase, but once the company enters the growth stage, the extent of new profits reflected in earnings per share is often more obvious. Assuming that both companies increase their net profit after tax by 100 million yuan, the company with a share capital of 10 billion yuan will see an increase in EPS of approximately 0.1 yuan; the company with a share capital of 1 billion yuan will increase its EPS by approximately 1 yuan.

Small share capital does not mean low competitiveness. In Taiwan's AI supply chain, many companies have small capital but occupy important positions in niche markets such as high-end materials, heat dissipation, optical communications, testing or key components. If it has the technical threshold, market dominance and order visibility, a smaller scale may allow the industry to grow faster, which will be reflected in operating performance.

Among Taiwan stocks whose market value has more than tripled in the past three years, companies with smaller capitalization account for nearly 90%. Taking Taiwan Optoelectronics as an example, its share capital is about 3.58 billion yuan. After AI drove demand for high-end materials, its market value has grown significantly in the past year. This also allows the market's observation perspective to further extend from large-capitalization stocks to more small and medium-sized enterprises with niche advantages.

The more differentiated the market, the more important research becomes

Looking forward to 2027, as corporate profits diverge, the importance of stock selection will further increase. Compared with large-capitalization stocks, small and medium-sized enterprises have greater differences in industrial status, financial quality, corporate governance and liquidity. Relying on theme or revenue growth alone is no longer enough to judge investment value, and more in-depth research and continuous screening are needed.

For this reason, domestic asset management companies, including Taishin Investment Corporation, began to launch strategic products focusing on companies with smaller capitalization, and through active research, they searched for companies with growth conditions. Small capital itself is not the answer. What really deserves attention are those "small but strong" companies that are still small in scale but already have technology, market share and profitability. The highlights of the next stage may be hidden among these companies that are still growing.