AI capital expenditures trigger shocks in technology stocks; Taiwan’s supply chain’s mid- to long-term growth momentum remains unchanged

Recently, global technology stocks have been affected by huge capital expenditures for artificial intelligence (AI) and doubts about profit prospects, and market volatility has intensified. There was a significant correction in U.S. technology stocks in October, with the Nasdaq index falling 5.3% throughout the month, further affecting the performance of Asian stock markets. However, the market's re-evaluation of AI investment returns does not mean that the demand for the AI ​​industry is cooling simultaneously. As global technology companies continue to expand computing infrastructure, demand for AI servers, advanced semiconductors and related electronic components still has growth momentum. Taiwan continues to play a key role in the development of the global AI industry by virtue of its complete technology industry cluster and supply chain competitive advantages.

AI capital expenditure attracts attention, long-term demand remains supportive

Recently, U.S. technology giants have released financial reports one after another, and the market focus has gradually shifted from the expansion speed of AI capital expenditures to whether related investments can create corresponding revenue and profits. Especially in an environment where global interest rates are still relatively high, technology companies' huge investment in infrastructure has also drawn more attention to capital costs and cash flow performance.

Global cloud service providers continue to expand their computing infrastructure, and supply chain clusters such as Taiwan's semiconductor, liquid cooling, and server assembly continue to benefit from rigid demand for hardware. (AFP)

The U.S. Federal Reserve (Fed) maintained its policy interest rate at a range of 3.75% to 4.00% at the end of October, indicating that monetary policy must still take into account inflation and economic conditions, and that uncertainty in short-term financial markets has not yet been completely eliminated.

Despite this, judging from industry fundamentals, global demand for AI computing continues to increase. According to market research data, capital expenditures by major U.S. cloud players are expected to increase by 77% annually in 2026, and there is still 33% room for growth in 2027, reflecting the trend of technology companies continuing to invest in data centers and AI infrastructure.

As generative AI gradually extends from model training to inference, enterprise applications and various business scenarios, computing power and data transmission requirements are simultaneously increasing, and the growth momentum of the AI ​​industry is gradually spreading from chips to the broader supply chain.

Taiwan's supply chain advantages continue, industrial upgrading drives growth

Taiwan has long been deeply involved in the fields of semiconductors, electronic manufacturing and high-end components, and plays an important role in the global AI supply chain. As AI server performance continues to improve, in addition to advanced process chips, areas such as advanced packaging, high-end testing, printed circuit boards (PCBs), power management, and high-speed transmission also continue to benefit from equipment specification upgrades and demand growth.

Among them, advanced packaging technology has become increasingly important in response to the integration needs of high-performance computing chips; AI servers' requirements for high-end electronic materials and power supply efficiency have also driven the related supply chain to develop towards high value-added products.

In addition, AI data center power consumption continues to increase, making power infrastructure, energy management and cooling technology an important part of industry development. The demand for high-speed data transmission has simultaneously driven the upgrade of optical communication technology, showing that AI growth opportunities are continuing to spread from the semiconductor core to peripheral industries.

It is worth noting that AI demand has also driven the transformation of some traditional industries. As the technical threshold for high-end materials increases, companies with R&D and manufacturing capabilities are expected to enter the electronic materials supply chain through product upgrades and further enhance industrial competitiveness.

Short-term market shock, Taiwan stocks return to fundamental review

Affected by the correction of U.S. technology stocks, Taiwan stocks fell by 2,729 points in October, or nearly 5.7%, indicating that the international market's doubts about AI capital expenditures and corporate valuations have been reflected in short-term stock price fluctuations. However, stock price corrections and changes in industry demand must still be observed separately. Judging from the supply chain status and corporate profit performance of Taiwan's technology industry, AI is still an important driving force supporting mid- to long-term growth.

Looking forward to 2027, global AI demand continues to expand, and the competitive advantages of Taiwanese companies in the fields of advanced manufacturing processes, packaging and testing, and key components are expected to continue to provide growth opportunities for related industries. However, as the market's expectations for corporate profits increase, the technical advantages, order visibility and profitability of individual companies will become important basis for evaluating their long-term growth potential.

In the face of international political and economic situations and financial market fluctuations, investors are advised to continue to pay attention to the development of the global technology industry and corporate fundamentals, and take into account valuation rationality and risk management, identify companies with long-term competitive advantages from structural changes in the industry, and seize growth opportunities for Taiwan stocks.

(The author is Vice President of Investment Research Department of HSBC Investment Trust)