Asger Risom
Taiwan’s economy is booming on the back of AI-driven chip demand, but concerns over a potential bubble, rising inequality and tensions with Beijing cast a shadow over its rapid growth.
Taiwan’s economy is surging on the back of the global artificial intelligence race.
But even as exports climb and chipmakers expand, questions are growing about how long the momentum can last.
In Taipei, property agent Jason Sung expects housing prices near a planned Nvidia headquarters to rise sharply. The U.S. chip giant is deepening its presence on the island and is set to overtake Apple as the largest customer of Taiwan Semiconductor Manufacturing Co., or TSMC.
Nvidia CEO Jensen Huang has called Taiwan the “center of the world’s computer ecosystem.” The island’s economy expanded at an annual rate of 8.6% last year, buoyed by AI-driven demand and a new trade agreement with U.S. President Donald Trump that reduced tariffs on Taiwanese goods to 15% from 20%.
“We have been lucky,” said Wu Tsong-min, an emeritus economics professor at National Taiwan University and former central bank board member.
Chip-powered surge
Taiwan, home to 23 million people, relies heavily on exports, which rose nearly 35% in 2025 from a year earlier. Shipments to the United States jumped 78%, reflecting soaring AI demand.
TSMC and electronics manufacturer Foxconn have been central to that growth. TSMC produces more than 90% of the world’s most advanced chips and reported a 46% rise in annual profit to 1.7 trillion New Taiwan dollars, about $54 billion.
Foxconn, a key supplier to Apple and Nvidia, has seen its market value double since 2023 as it pivots further into AI servers and data center equipment.
Still, analysts caution that Taiwan’s reliance on tech makes it vulnerable if the AI boom slows. “What if the AI bubble is real, and what if its rapid growth pace slows, what’s next for Taiwan? That’s the question many have been asking,” Wu said.
Bubble concerns
Fears of an AI bubble have drawn comparisons to the dot-com crash of 2000.
“I’m also very nervous about it,” TSMC Chairman C.C. Wei said on a January earnings call, noting the company plans to invest $52 billion to $56 billion this year. “If we did not do it carefully, that will be a big disaster to TSMC for sure.”
Ratings agency Fitch said in a recent report that near-term demand should remain solid, though longer-term risks depend on trade policy and how AI evolves.
Spencer Shen, chairman of cooling systems supplier Asia Vital Components, dismissed bubble concerns. “We do not believe this is a bubble,” he told The Associated Press. “AI is driven by companies with real products and massive cash flows, like Amazon, Microsoft, Google and Meta.”
Geopolitics and inequality
Beyond market cycles, tensions with Beijing remain a persistent risk. China claims Taiwan as its territory and has increased military drills near the island.
Some Taiwanese argue that the island’s dominance in semiconductor manufacturing serves as a “silicon shield,” deterring conflict because of the global reliance on its chips.
At home, however, the benefits of the AI surge are uneven. The Taiex index has risen nearly 250% over the past decade, yet Taiwan’s wealth gap has widened significantly.
“It can be tough to make a living,” said Jean Lin, who manages a takeaway outlet in Taipei. “Many of the younger generation still can’t afford to buy an apartment.”
Sources: The Associated Press
