Taiwan’s AI moat is better than South Korea’s! Why Taiwan stocks have low exposure: Foreign media reveals the answer

Reuters reported that Asia's high-stakes artificial intelligence race is facing its biggest challenge yet, and Taiwan may have an advantage over South Korea; Taiwan's artificial intelligence moat is better than South Korea's.

Asia's tech-heavy stock markets have had a difficult past few months, and the situation has only worsened in recent days. The Democratic Party's landslide victory in last week's U.S. midterm elections stoked concerns about a slowdown in the artificial intelligence boom, sending stock markets in Asia into turmoil. But this weakness is not evenly distributed. The Korea Composite Stock Price Index (KOSPI) is down more than 44% from its June 22 peak, while the Taiwan Weighted Index (TAIEX) is down only 20% from its October 6 high. Both have maintained strong gains year-to-date, but the KOSPI is up about 17%, lagging behind the TAIEX index, which is up 35%.

The valuation differences are even more significant. The expected price-to-earnings ratio (P/E) of the South Korea Composite Stock Price Index has fallen from 12.4 times in October 2025 to 4.1 times on November 6, while the P/E ratio of the Taiwan Weighted Index has remained in the range of 14 times to 20 times. FactSet's consensus forecast shows Taiwan currently trading at a forward price-to-earnings ratio of 14.4 times, more than three times South Korea's.

How to explain the above situation? Because the two markets have very different exposures to artificial intelligence. The fate of both markets is inseparable from the AI ​​capital spending boom, but the corporate drivers behind them are very different.

Investment opportunities in Taiwan cover the entire AI supply chain, and the degree of concentration risk is lower than in South Korea.

Investment opportunities in Taiwan span the entire supply chain of artificial intelligence, in addition to one of the world's leading chip manufacturers, TSMC, which accounts for nearly 40% of the Taiwan Weighted Index. In addition, there are MediaTek in the field of chip design, ASE Technology in the field of advanced packaging, Hon Hai Precision Industry and Quanta Computer in the field of server design and assembly, and Delta Electronics in the field of power and refrigeration systems. In addition, the Taiwan Weighted Index also contains a large number of technology stocks, which together account for nearly 23% of the weight of the index.

In contrast, South Korea's AI investments are concentrated in the cyclically powerful memory sector, primarily through Samsung Electronics and SK Hynix, which together account for about half of the Korea Composite Stock Price Index, while all other technology companies combined account for only 6%.

This helps explain why Taiwan's technology stock market capitalization accounts for more than 70%, compared with about 55% in South Korea, but investors are less concerned about Taiwan's concentration risk.

Taiwan’s technology concentration is higher but more diversified

The recent growth of South Korea's two technology giants has been mainly driven by soaring memory prices, which further exacerbates concentration risks in South Korea. The memory industry is highly cyclical, so any price drops could force companies to significantly lower their profit forecasts, a concern that may have contributed to last week's share price decline.

To make matters worse, Korean retail investors have taken on large margin loans to buy high-risk individual stock ETFs, making the market highly vulnerable to violent fluctuations. Although margin loan balances fell in July, they have since risen again. If AI market sentiment continues to be lower, the risk of heightened volatility will increase.

Taiwan's leading technology companies also have a clear advantage over their Korean counterparts. They have strong barriers to competition and dominate key links in the AI ​​supply chain. TSMC controls 73% of the market share, and its pure foundry market share is between 90% and 99%. Hon Hai Electronics is the world's largest electronics contract manufacturer, accounting for 40% of the artificial intelligence server assembly market and is moving towards a 50% share. .

Replicating Taiwan's complex chip manufacturing processes requires a large investment, is time-consuming, and relies on proprietary intellectual property rights. In contrast, South Korean memory leaders Samsung and SK Hynix, which currently dominate the industry along with U.S.-based Micron Technology, are already facing increasing competition from Chinese rivals such as Changxin Memory, especially in high-bandwidth memory.

But even taking these fundamentals into account, is the huge valuation gap between Taiwan and South Korea too big to be sustainable? Taiwan's price-to-earnings ratio has long been higher than South Korea's, with a 10-year average premium of 50%. But according to FactSet calculations, the current premium is as high as 260%.

As a result, investors are increasingly uneasy about the "buy Taiwan, sell South Korea" trading strategy. In October, net sales by foreign investors in South Korea were only US$14 billion, while net sales in Taiwan were as high as US$31 billion.

In the short term, the valuation gap may attract some bargain-hunting investors. But the recent wave of selling suggests that South Korea’s low price-to-earnings ratio alone is not enough to reverse foreign capital outflows, as investors reassess returns on investments in artificial intelligence and the sustainability of the capital spending boom.

In the long run, Taiwan's structural advantages remain unquestionable. Artificial intelligence may be opening up a new world, but in finance, wide moats and diversified investments are still the winning formula.