AI boom drives Taiwan semiconductor small-cap stocks into new cash cows

The ripple effects of the artificial intelligence (AI) industry are extending from core wafer fabrication and packaging-testing to software algorithms, data centers, and automation equipment, forming a comprehensive supply chain spanning semiconductors, electronic components, and information services. Taiwan holds a leading position globally in wafer foundry and advanced packaging sectors. As enterprises worldwide accelerate their deployment of AI-related industries, demand for the domestic supply chain continues to rise. Investment trust firms point out that AI growth will not be concentrated solely in a few blue-chip stocks, but will instead generate multi-point breakthroughs across the entire supply chain, allowing many small- and medium-sized enterprises (SMEs) with market capitalizations currently under NT$100 billion to welcome a rapid growth window in revenue and profit.

Over the past few months, as AI use cases continue to multiply, many mid-sized companies dubbed by the market as "quasi-high-priced stocks" have begun to exhibit operational momentum. The majority of these companies possess technological advantages in optical inspection, sensors, printed circuit boards (PCBs), power components, and AI-related hardware-software integration. Furthermore, compared to major semiconductor giants, they offer greater flexibility in research and development (R&D) and capacity expansion. Investment trust analysts believe that as AI demand continues to expand, both order volumes and gross profit margins for these enterprises are expected to rise simultaneously, and their stock price appreciation potential should not be underestimated. Investors who focus exclusively on a limited number of large-cap stocks may miss out on the growth dividends of the entire supply chain.

Based on the aforementioned observations, Capital Investment Trust and Taishin Investment Trust have recently launched thematic ETFs targeting the Taiwan stock market's AI supply chain, which are scheduled to be listed on the stock exchange successively in the fourth quarter of this year. Both funds focus on "AI potential stocks" as their investment scope, employing an indexing approach to select SMEs with revenue growth and technological leadership, while setting 2027 as their long-term investment target year to capture capital returns during the maturity phase of the AI industry. This move not only provides investors with a convenient asset allocation tool, but also demonstrates that investment trust firms have expanded their horizons from traditional blue-chip stocks to a broader industrial level.

The launch of these ETFs will have multiple impacts on market liquidity and capital allocation. First, indexing investment lowers the stock-selection barrier for individual stocks, enabling retail and institutional investors to participate in the growth of AI-related small- and medium-sized stocks at a lower cost. Second, as fund sizes expand, related companies will receive greater financial support, helping to accelerate R&D and capacity expansion, thereby creating a positive feedback loop. However, investing in small- and medium-sized stocks also entails risks such as higher volatility, information asymmetry, and insufficient market depth. Investment trust firms have reminded investors in their prospectus to maintain a proper balance between risk assessment and asset allocation.

From a macroeconomic perspective, the launch of these ETF products marks a gradual transformation of Taiwan's capital market toward industry-oriented and future-technology themes. As AI technology continues to penetrate various sectors, capital will increasingly tend to support domestic enterprises with innovation capabilities and international competitiveness, further enhancing the depth of Taiwan's deployment in the global AI supply chain. If relevant policies and industrial upgrades advance in tandem, the structural growth of Taiwan's stock market is expected to manifest within the small- and medium-sized enterprise sector over the coming years, bringing diversified sources of returns to investors.

(Source of Facts: Central News Agency)