《Taiwan Stock Market Insights》Global financial markets have recently faced multiple uncertainties, including pressure from major central banks raising interest rates, escalating geopolitical tensions, policy uncertainties arising from the U.S. midterm elections, and market concerns over risks in AI investment and financing. On Thursday (15th), foreign investors heavily sold Taiwan stocks, with net sell amounts reaching a record high, reflecting heightened investor caution toward interest rate, AI financing, and geopolitical risks. However, based on past experience, extreme foreign selling often reflects short-term market sentiment more than anything else, and the Taiwan stock market typically completes its adjustment within one to two weeks before gradually stabilizing. Compared to short-term disruptions from the macro environment, we believe corporate earnings remain the key determinant of the stock market's medium- to long-term direction. Looking ahead to the upcoming earnings season, Taiwan companies are poised to continue the virtuous cycle of outperforming earnings expectations and receiving upward revisions in profit forecasts since 2023, serving as a significant driving force supporting the Taiwan stock market.
First, the AI investment cycle remains in a high-growth phase, with order visibility for related companies staying at high levels. Although the market occasionally worries that growth in AI capital expenditure might slow, the continued expansion of capital spending by global cloud service providers (CSPs) indicates that demand for AI infrastructure remains strong. Supplies remain tight across the board—whether it's GPUs, in-house ASICs, high-speed switches, silicon photonics, HBM memory, or CoWoS advanced packaging—with some segments continuing to face supply shortages.
Particularly noteworthy is TSMC's latest technology roadmap, which shows CoWoS packaging area expanding from the current approximately 5.5 reticle sizes to 14 reticle sizes by 2028, reflecting the ever-increasing scale of AI chips and the continuous rise in demand for advanced packaging. Currently, order visibility for many AI supply chain companies already extends to 2027–2028, indicating that this industrial growth cycle still has a long way to go rather than nearing its end. Therefore, this earnings season is likely to maintain the positive tone of the past few quarters, further strengthening market confidence in future profit growth.
On the other hand, third-quarter revenues generally outperformed expectations, laying a solid foundation for this earnings season. According to recently released data, more than 70% of industry sectors reported third-quarter revenues exceeding market expectations. Among them, technology sectors such as mobile electronics manufacturing services (EMS), server EMS, ABF substrates, semiconductor equipment, IC design services, and memory performed particularly well, with most companies' revenues surpassing initial market estimates.
Notably, outperformance isn't limited to technology firms. Traditional industries such as industrial automation, catering, aviation, and food have also delivered solid results, reflecting certain resilience in domestic consumption and corporate investment. This also implies that the current improvement in corporate earnings is gradually spreading from AI-related industries to other sectors. When profit growth is no longer concentrated in a few tech giants but involves more industries, the foundation for upward revisions in overall market earnings forecasts naturally becomes more solid.
In addition to revenue growth, product mix improvement is another key focus of this earnings season. As demand for AI servers, ASIC chips, HBM memory, high-speed networking equipment, and advanced packaging rapidly increases, the proportion of high-margin products continues to rise. Compared to traditional consumer electronics, AI-related products typically have higher technological barriers and pricing power, helping to improve gross margins and operating profit margins.
In fact, over the past two years, many companies have seen profit growth significantly outpacing revenue growth, even when revenue increases were not particularly outstanding. Behind this, in addition to rising demand, the more important factor has been product mix upgrades, allowing companies to generate higher profits from each dollar of revenue. In other words, this round of profit growth is not solely dependent on expanding sales volume but also driven by increased product value-added. If companies further confirm during this earnings season that the trend of margin improvement can continue, analysts will have greater room to raise earnings forecasts, potentially prompting the market to re-evaluate the valuations of these companies.
Among numerous companies, TSMC's earnings announcement remains undoubtedly a key barometer shaping Taiwan stock market earnings expectations. Past experience shows that after TSMC releases its earnings and future outlook, analysts often revise upward their forecasts for the semiconductor industry, and even the overall Taiwan stock market. In terms of stock price movements, the Taiwan stock index usually gradually rises before TSMC's earnings announcement, and although short-term profit-taking may occur afterward, it often has the opportunity to resume an upward trend after about one to two weeks of consolidation. Against the backdrop of persistently strong AI demand and generally better-than-expected third-quarter revenues, TSMC's upcoming earnings announcement could still serve as a significant catalyst driving year-end market performance.
As for the current market concerns over interest rate hikes, geopolitical conflicts, and the U.S. midterm elections, these factors may indeed intensify short-term stock market volatility, but their impact on corporate medium- to long-term earnings may not be as severe as market sentiment suggests. For example, in the credit market, the credit spread for CCC-rated high-yield bonds is currently around 1000 basis points, or 10 percentage points—although higher than during periods of loose financial conditions, it is still far from the levels above 1500 basis points seen during previous crises. This reflects that market vigilance toward risk is increasing, but it is not yet sufficient to conclude a systemic financial crisis is imminent based on this indicator alone.
Stock markets have never risen in a completely risk-free environment. Interest rates, politics, and geopolitical situations will affect short-term investor sentiment, but as long as corporate earnings continue to grow and analysts keep revising future earnings forecasts upward, the stock market has the capacity to absorb these adverse factors. Especially when the market adjusts due to macro risks, but corporate earnings outlooks have not deteriorated accordingly, it may instead present medium- to long-term investors with opportunities to reposition their portfolios.
Overall, we believe this earnings season could once again become a significant supporting force for the Taiwan stock market. Sustained strong AI demand, third-quarter revenues exceeding expectations, rising proportions of high-margin products, and the possibility of TSMC triggering a new round of earnings forecast upgrades—all these factors can help offset disruptions from macro factors such as interest rate hikes, geopolitical tensions, and elections. The market may inevitably be swayed by news in the short term, but as long as the trend of upward earnings revisions remains unchanged, the bull market pattern in Taiwan stocks driven by earnings growth since 2023 is still likely to continue.
*Articles published in《Economic Times》under named or anonymous authorship reflect the personal opinions of the authors and do not represent the stance of《Economic Times》. The role of《Economic Times》is to provide a platform for free expression of views.
First, the AI investment cycle remains in a high-growth phase, with order visibility for related companies staying at high levels. Although the market occasionally worries that growth in AI capital expenditure might slow, the continued expansion of capital spending by global cloud service providers (CSPs) indicates that demand for AI infrastructure remains strong. Supplies remain tight across the board—whether it's GPUs, in-house ASICs, high-speed switches, silicon photonics, HBM memory, or CoWoS advanced packaging—with some segments continuing to face supply shortages.
Particularly noteworthy is TSMC's latest technology roadmap, which shows CoWoS packaging area expanding from the current approximately 5.5 reticle sizes to 14 reticle sizes by 2028, reflecting the ever-increasing scale of AI chips and the continuous rise in demand for advanced packaging. Currently, order visibility for many AI supply chain companies already extends to 2027–2028, indicating that this industrial growth cycle still has a long way to go rather than nearing its end. Therefore, this earnings season is likely to maintain the positive tone of the past few quarters, further strengthening market confidence in future profit growth.
On the other hand, third-quarter revenues generally outperformed expectations, laying a solid foundation for this earnings season. According to recently released data, more than 70% of industry sectors reported third-quarter revenues exceeding market expectations. Among them, technology sectors such as mobile electronics manufacturing services (EMS), server EMS, ABF substrates, semiconductor equipment, IC design services, and memory performed particularly well, with most companies' revenues surpassing initial market estimates.
Notably, outperformance isn't limited to technology firms. Traditional industries such as industrial automation, catering, aviation, and food have also delivered solid results, reflecting certain resilience in domestic consumption and corporate investment. This also implies that the current improvement in corporate earnings is gradually spreading from AI-related industries to other sectors. When profit growth is no longer concentrated in a few tech giants but involves more industries, the foundation for upward revisions in overall market earnings forecasts naturally becomes more solid.
In addition to revenue growth, product mix improvement is another key focus of this earnings season. As demand for AI servers, ASIC chips, HBM memory, high-speed networking equipment, and advanced packaging rapidly increases, the proportion of high-margin products continues to rise. Compared to traditional consumer electronics, AI-related products typically have higher technological barriers and pricing power, helping to improve gross margins and operating profit margins.
In fact, over the past two years, many companies have seen profit growth significantly outpacing revenue growth, even when revenue increases were not particularly outstanding. Behind this, in addition to rising demand, the more important factor has been product mix upgrades, allowing companies to generate higher profits from each dollar of revenue. In other words, this round of profit growth is not solely dependent on expanding sales volume but also driven by increased product value-added. If companies further confirm during this earnings season that the trend of margin improvement can continue, analysts will have greater room to raise earnings forecasts, potentially prompting the market to re-evaluate the valuations of these companies.
Among numerous companies, TSMC's earnings announcement remains undoubtedly a key barometer shaping Taiwan stock market earnings expectations. Past experience shows that after TSMC releases its earnings and future outlook, analysts often revise upward their forecasts for the semiconductor industry, and even the overall Taiwan stock market. In terms of stock price movements, the Taiwan stock index usually gradually rises before TSMC's earnings announcement, and although short-term profit-taking may occur afterward, it often has the opportunity to resume an upward trend after about one to two weeks of consolidation. Against the backdrop of persistently strong AI demand and generally better-than-expected third-quarter revenues, TSMC's upcoming earnings announcement could still serve as a significant catalyst driving year-end market performance.
As for the current market concerns over interest rate hikes, geopolitical conflicts, and the U.S. midterm elections, these factors may indeed intensify short-term stock market volatility, but their impact on corporate medium- to long-term earnings may not be as severe as market sentiment suggests. For example, in the credit market, the credit spread for CCC-rated high-yield bonds is currently around 1000 basis points, or 10 percentage points—although higher than during periods of loose financial conditions, it is still far from the levels above 1500 basis points seen during previous crises. This reflects that market vigilance toward risk is increasing, but it is not yet sufficient to conclude a systemic financial crisis is imminent based on this indicator alone.
Stock markets have never risen in a completely risk-free environment. Interest rates, politics, and geopolitical situations will affect short-term investor sentiment, but as long as corporate earnings continue to grow and analysts keep revising future earnings forecasts upward, the stock market has the capacity to absorb these adverse factors. Especially when the market adjusts due to macro risks, but corporate earnings outlooks have not deteriorated accordingly, it may instead present medium- to long-term investors with opportunities to reposition their portfolios.
Overall, we believe this earnings season could once again become a significant supporting force for the Taiwan stock market. Sustained strong AI demand, third-quarter revenues exceeding expectations, rising proportions of high-margin products, and the possibility of TSMC triggering a new round of earnings forecast upgrades—all these factors can help offset disruptions from macro factors such as interest rate hikes, geopolitical tensions, and elections. The market may inevitably be swayed by news in the short term, but as long as the trend of upward earnings revisions remains unchanged, the bull market pattern in Taiwan stocks driven by earnings growth since 2023 is still likely to continue.
*Articles published in《Economic Times》under named or anonymous authorship reflect the personal opinions of the authors and do not represent the stance of《Economic Times》. The role of《Economic Times》is to provide a platform for free expression of views.
