Taiwan's AI-powered economy hits 8.6% growth as bubble fears and China threats loom large

Taiwan Economy Rides AI Wave to Record Growth

The Taiwan economy posted remarkable economic growth of 8.6% in 2024, positioning the island of 23 million people at the center of the global AI supply chain1

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. This AI-powered economy has transformed the island into what Nvidia CEO Jensen Huang calls the "center of the world's computer ecosystem," with exports jumping nearly 35% year-on-year in 20252

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. Shipments to the U.S. surged 78% due to ballooning global demand for artificial intelligence, driven primarily by TSMC and electronics giant Foxconn, which manufactures AI servers for Nvidia and supplies data center equipment to major tech companies1

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TSMC and Nvidia Anchor Advanced Semiconductor Sector

TSMC, the world's largest contract manufacturer of advanced chips needed for artificial intelligence, has become one of the top 10 most valuable companies globally. The computer chip makers saw profits jump 46% last year to $1.7 trillion Taiwan dollars ($54 billion), as it produces more than 90% of the world's most advanced chips2

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. Nvidia plans to build its new Taiwan headquarters in Taipei and is set to surpass Apple as TSMC's biggest customer, reflecting the company's rapid expansion in semiconductor fabrication1

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. Meanwhile, Foxconn has doubled its value since 2023 and now partners with OpenAI to supply AI data center equipment, shifting from traditional manufacturing to producing AI servers and racks2

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AI Bubble Concerns Echo Dot-Com Crash Fears

Despite the momentum, concerns about an AI bubble are mounting among economists and industry leaders. "What if the AI bubble is real, and what if its rapid growth pace slows, what's next for Taiwan?" asked Wu Tsong-min, an emeritus economics professor at National Taiwan University and former central bank board member1

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TSMC chairman C.C. Wei expressed nervousness during an earnings call in January, noting the company must invest $52-$56 billion this year: "If we did not do it carefully, that will be a big disaster to TSMC for sure. I want to make sure that my customers' demands are real"2

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. The worries echo the dot-com crash of 2000, raising questions about whether current investment levels in the global AI supply chain are sustainable.

Industry Leaders Push Back Against Bubble Narrative

Not everyone shares these concerns. Spencer Shen, chairman of Asia Vital Components, a key supplier of cooling systems for Nvidia, maintains confidence: "We do not believe this is a bubble. AI is driven by companies with real products and massive cash flows, like Amazon, Microsoft, Google and Meta"1

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. His company is already designing thermal solutions for 2028 AI servers, signaling long-term demand visibility2

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. Fitch Ratings analysts argue that AI demand will remain strong at least in the near term, though longer-term risks "will depend on the evolution of AI, as well as trade and investment policies and the adaptability of Taiwanese firms"1

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Geopolitical Tensions with China Cloud Economic Outlook

Beyond market concerns, geopolitical tensions with China pose another significant threat to Taiwan's economic trajectory. Beijing claims independently governed Taiwan as mainland China's territory and has been stepping up pressure through military drills nearby2

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. Exercises in late December included live rounds landing closer to the island than before, raising fears of potential supply chain disruptions that could impact the chip supply chain1

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. Lynn Song, chief economist for Greater China at ING Bank, notes that Taiwan's biggest risk is that growth will be "very highly contingent on the AI boom and tech race continuing"2

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. The island recently sealed a trade deal with U.S. President Donald Trump that cut U.S. tariffs on Taiwan to 15% from 20%, providing some relief amid these challenges1

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