How the Rise of Sovereign AI Will Impact the Future of Taipei Stock Market's Tech Supply Chain

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The rise of Sovereign AI is not a distant concept. It is a structural force reshaping global technology demand. Nations’ pursuit of data sovereignty and computing infrastructure is translating into massive orders for Taiwan’s tech industry. This directly benefits semiconductor, server, and networking equipment manufacturers, profoundly influencing the direction of the Taipei stock market in 2025 and beyond. This impact is dual-natured: it not only boosts orders and valuations for specific companies but also drives supply chain diversification, bringing new opportunities and challenges.

Key Highlights

• Sovereign AI drives countries to build their own AI computing capabilities, bringing substantial orders to Taiwanese tech companies.
• Taiwan’s semiconductor, server, and networking equipment companies will gain enormous benefits from the growth of sovereign AI.
• Sovereign AI prompts changes in the global tech supply chain, requiring Taiwanese companies to adapt to localized production and varying technical standards.
• Investors should focus on companies’ orders, capital expenditures, and customer relationships to identify winners in the sovereign AI trend.
• Geopolitics is a significant factor affecting Taiwan’s tech supply chain, and companies need the ability to respond to changes in international relations.

New Hardware Demand Driven by Sovereign AI

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The grand narrative of sovereign AI is rapidly translating into massive demand for physical hardware. Governments are no longer satisfied with software-level deployments but are turning their attention to building autonomous and controllable computing infrastructure. This shift has directly ignited a procurement boom for high-performance chips, servers, and networking equipment, injecting unprecedented growth momentum into the Taipei stock market’s tech supply chain.

Semiconductors and Foundry: Core of AI Chip Demand

The core of sovereign AI is computing power, and the foundation of computing power is high-performance AI chips. National AI strategies are essentially an arms race centered on advanced chips. From North America to Europe and Asia, government-led investment plans are unfolding globally.

For example, Canada is building its AI capabilities through a approximately $1.5 billion “sovereign AI computing strategy.” France is ensuring national control over data through investments in trusted cloud infrastructure. The UAE’s “National Artificial Intelligence Strategy 2031” also aims to become a global AI leader through robust national infrastructure. These national-level massive budgets will ultimately translate into orders for high-performance computing (HPC) chips and application-specific integrated circuits (ASICs).

Demand Transmission Path: Sovereign AI investment → National data center construction → Procurement of large quantities of AI chips → TSMC advanced process orders + Revenue growth for IC design companies like MediaTek

This trend is directly reflected in the financial reports of Taiwan’s leading semiconductor companies.

• TSMC: As the global leader in advanced processes, almost all mainstream AI chips rely on its manufacturing. Benefiting from the AI boom, TSMC’s third-quarter 2025 revenue grew 30% year-over-year, exceeding market expectations. This strong growth indicates that orders driven by sovereign AI are continuing to ferment.
• MediaTek: The company has also seized significant growth opportunities from AI, expecting a record year in 2025 with revenue potentially exceeding $19 billion.

For the chip industry, sovereign AI not only brings quantitative growth but also higher requirements for technological leadership. This further consolidates the market position of companies like TSMC that possess core technological barriers.

Servers and Cooling: Data Center Construction Wave

If chips are the brain of AI, then the server racks and data centers that house them are the body of AI. Sovereign AI strategies require countries to build their own large-scale data centers, opening a second growth curve for Taiwan’s server original design manufacturers (ODMs) following cloud service providers (CSPs).

Foxconn, Quanta, and Wistron, global server manufacturing giants, are becoming the most direct beneficiaries of this wave.

• Foxconn: Driven by global AI demand, the company’s November revenue grew 26% year-over-year, with its server rack business deeply tied to upstream chip giants like NVIDIA.
• Quanta: AI servers have become its absolute mainstay. In the first half of 2025, AI servers accounted for over 60% of its total server revenue, expected to reach 70% by year-end.
• Wistron: Server sales accounted for about 70% of total revenue in the previous quarter, with the vast majority coming from AI-related products.

At the same time, the power consumption of AI servers is surging, making traditional air cooling solutions inadequate. A server equipped with 8 high-performance GPUs can consume 10-12kW, turning liquid cooling from an option to a necessity. This brings historic opportunities for cooling solution providers.

By 2025, liquid cooling technology is expected to account for 12% of the overall data center cooling market. For Taiwanese cooling giants like Auras and Chaun-Choung, this is a brand-new blue ocean market. Auras expects liquid cooling products to contribute over 40% of its revenue by 2025.

From server assembly to critical cooling modules, the wave of sovereign AI data center construction is fully activating “AI server concept stocks” in the Taipei stock market.

Networking and Connectivity Equipment: Foundation of High-Speed Transmission

AI data centers have massive internal data exchange demands. Training a large language model requires high-frequency, synchronized data transmission between thousands of GPUs. Any network bottleneck can severely impact training efficiency. Therefore, high-speed network switches and optical modules have become the key “nervous system” supporting sovereign AI computing power.

To meet communication needs within AI clusters, networking equipment is rapidly iterating toward higher bandwidth and lower latency. 800G-rate equipment has become the current mainstream, while the 1.6T era is accelerating.

• Market Demand Explosion: The global 800G optical module market is expected to reach $12 billion in 2025, with 40% year-over-year growth. By 2028, the overall market for 800G and 1.6T optical modules is projected to exceed $32 billion.
• Technology Iteration Acceleration: NVIDIA has fully transitioned to 1.6T optical modules in its latest GB300 servers, pointing a clear technology upgrade path for the supply chain. 2025-2026 is seen as a critical period shaping the 1.6T optical module industry landscape.

In this networking upgrade feast, Taiwan’s networking companies play important roles. Particularly white-box switch manufacturers represented by Accton, leveraging cost-effectiveness and flexibility advantages, are steadily eroding the market share of traditional branded switches.

• White-Box Switch Market: Expected to grow from approximately $6.5 billion in 2023 to $18 billion in 2028, with a compound annual growth rate of 22%.
• Key Players: Accton Technology and Delta Electronics are core players in this market. Accton, with deep cooperation with hyperscale cloud clients, holds a leading position in 400G and higher-speed switch markets.

Sovereign AI-driven network infrastructure construction requires not only faster “main arteries” (optical modules) but also more efficient “switching hubs” (switches). This provides a clear and sustained growth logic for the networking and communications sector in the Taipei stock market.

Reshaping of Supply Chain Landscape and Challenges

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The massive hardware demand brought by sovereign AI is just the beginning of the story. Accompanying this wave is a profound structural reshaping of the global tech supply chain. While pursuing computing autonomy, countries also demand that supply chains be more secure, controllable, and closer to home. This transformation presents unprecedented opportunities and severe challenges for Taiwan’s highly concentrated tech supply chain.

Trend Toward Supply Chain Localization

One core demand of sovereign AI is “control,” extending from the data level to the physical manufacturing level. Governments are no longer satisfied with simply purchasing servers and chips made in Taiwan but want to move parts of the supply chain to their own countries or nearby regions. To this end, major global economies have launched massive fiscal incentive measures, promoting manufacturing reshoring or regionalization.

Major Global Economies’ Supply Chain Localization Policies

• United States: Through the CHIPS and Science Act providing approximately $52.7 billion in subsidies, aiming to increase its global semiconductor manufacturing share to 14% by 2032.
• European Union: Launching the European Chips Act, planning to invest over $47 billion in public-private funds, striving to double the EU’s chip market share to 20% by 2030.
• China: Through strategic initiatives like the National Integrated Circuit Industry Investment Fund (Big Fund), vigorously supporting domestic semiconductor production to reduce reliance on external technology.
• India: Launching the Production Linked Incentive (PLI) scheme, committing $10 billion to position itself as a semiconductor packaging, testing, and manufacturing center.

These policies directly guide the flow of global capital. For Taiwanese supply chain companies, this means customer demands are no longer just orders but may come with requirements to establish factories in North America, Europe, or Southeast Asia. This “localization” wave is forcing Taiwanese companies to shift from the traditional “made in Taiwan, exported globally” model to a new “manufactured globally, serving globally” paradigm.

Risk of Technical Specification Fragmentation

When there is a lack of unified global AI infrastructure standards, “sovereign AI” projects in various countries or regions may develop unique technical specifications and regulatory requirements. This trend leads to “fragmentation” of technical standards, bringing new complexity to the supply chain.

In the past, suppliers could produce standardized products for the global market. In the future, they may need to provide customized hardware and software solutions for customers in the U.S., Europe, and Asia. For example, an AI server design may need to simultaneously comply with U.S. data security regulations, EU privacy protection frameworks, and specific national data residency requirements.

⚠️ Dilemma for Investors and Manufacturers: Accelerated Obsolescence and Waiting Risks

A fragmented market brings a tricky balancing problem.

• Premature Procurement or Production: May lead to excess component inventory or product specifications not matching final customer requirements, causing significant waste.
• Waiting Too Long: May face shortages and price surges of key components (such as GPUs, HBM), missing market opportunities.

This uncertainty increases the difficulty and cost of supply chain management. Companies must have stronger R&D flexibility and keener market insight to remain competitive amid rapidly changing technical specifications. For enterprises relying on standardization and large-scale production to control costs, this is a huge challenge.

Differentiation Between Benefiting and Challenged Companies

In this major supply chain reshaping, not all companies will benefit. A company’s technological strength, capital scale, and global layout capabilities will determine whether it becomes a winner or loser.

Clearly Benefiting Companies typically have the following characteristics:

1. Possess Irreplaceable Core Technology: Top technology remains a scarce resource regardless of supply chain changes.
2. Have Global Production and Service Capabilities: Able to follow customer footsteps and quickly establish production bases in different regions.
3. Provide Highly Customized Solutions: Able to meet the unique needs of different sovereign AI projects.

Companies Facing Challenges are often those:

• With shallow technological moats and easily replaceable products, typically small and medium-sized enterprises.
• With overly concentrated customers and markets, lacking resilience against geopolitical risks.
• With insufficient capital strength to support global layouts and high-intensity R&D investments.

In summary, the sovereign AI trend will accelerate internal differentiation among tech stocks in the Taipei stock market. Leading companies with core technology and global capabilities will grow stronger, while those lacking competitiveness may be marginalized in the supply chain reshuffle.

Investment Strategy: How to Position in the 2025 Taipei Stock Market

The sovereign AI trend paints a clear growth blueprint for tech stocks in the Taipei stock market. However, opportunities and risks coexist. For investors to successfully position in 2025 and beyond, they must look beyond short-term market fluctuations, adopt a more refined analysis framework, and focus on fundamental indicators and ongoing geopolitical dynamics.

Key Observation Metrics: Orders and Capital Expenditures

Against the backdrop of market expectations for over 20% EPS growth in the 2025 Taipei stock market, investors need to dig deeper into data to identify companies with true long-term value. The following three metrics are key to evaluating sovereign AI beneficiary stocks:

• Order Visibility: AI demand has pushed order visibility for some leading companies to new highs. For example, competition among AI chip customers for TSMC’s 3nm capacity has made front-end wafer capacity a new supply bottleneck. This indicates extremely strong demand, providing high certainty for the company’s revenue in the coming quarters.
• Capital Expenditure (CapEx) Plans: Capital expenditure is the most direct indicator of management’s confidence in future demand. TSMC has narrowed its 2025 capital expenditure guidance to $40 billion to $42 billion at the high end and is considering further expansion in 2026. This large-scale investment directly reflects the company’s firm optimism about long-term AI-driven growth.
• Customer Composition and Stickiness: The rise of sovereign AI is changing customer composition. Investors should focus on companies with “recurring revenue and high customer stickiness” business models. They can not only lock in government or large enterprise customers but also build deep partnerships through customized services, forming strong moats.

Strong fundamentals directly drive market valuation increases. Multiple analyst firms have raised target prices for key companies. For example, Barclays raised TSMC’s target price to $325, citing its continued leadership in AI expansion. This shows that solid orders and capital expenditure plans are the core drivers supporting stock price rises.

Persistent Impact of Geopolitical Risks

Geopolitics is an unavoidable long-term variable affecting the Taipei stock market’s tech supply chain. Ongoing U.S.-China tech competition is a double-edged sword for Taiwanese companies.

On one hand, it brings uncertainty. U.S. export controls on Chinese tech companies have forced companies like TSMC to adjust relationships with major customers like Huawei, directly impacting revenue structures. This risk requires companies to have supply chain resilience and diversification capabilities to cope with sudden policy changes.

On the other hand, geopolitics also highlights Taiwan’s critical position in the global tech ecosystem. Due to TSMC’s dominant position in global advanced wafer foundry, the U.S. and its allies’ reliance on it increases rather than decreases when building “de-risking” supply chains. This instead consolidates the strategic value of Taiwan’s core technology companies.

For investors, this means evaluating a company not only on technology and finances but also on its geopolitical risk management capabilities. Companies that successfully navigate complex international relations, achieve global layouts, and meet compliance requirements in different regions will occupy more advantageous positions in future competition.

Sovereign AI is not a short-term hype theme; it is the core driving force reshaping the long-term value of the Taipei stock market’s tech supply chain. This trend will amplify the moats of technology-leading companies while bringing survival pressure to those lacking core competitiveness. For investors, understanding the impact of sovereign AI on the industry chain is crucial.

Investors need to go beyond simple financial statement analysis, incorporating geopolitics, industrial policies, and technological evolution into considerations. Maintaining keen observation and closely monitoring related companies’ strategic adjustments and order changes is key to seizing opportunities in this structural transformation.

FAQ

What is the difference between sovereign AI and regular AI?

Sovereign AI is a national-level strategy. It emphasizes a country building and controlling its own AI computing infrastructure and data. Regular AI refers broadly to the technology itself. The core goal of sovereign AI is to ensure technological autonomy and data security, rather than mere technological application.

Which industries in the Taipei stock market are most impacted by sovereign AI?

The most directly impacted industries include:

• Semiconductors: Core of AI chip demand, benefiting foundries like TSMC.
• Servers: Data center construction wave, driving ODMs like Foxconn and Quanta.
• Cooling and Networking: High-performance computing brings demand for liquid cooling and high-speed switches.

What are the main risks of investing in sovereign AI concept stocks?

The primary risks come from geopolitics and changes in technical specifications. The supply chain localization trend may require companies to increase overseas investments. At the same time, varying national technical standards may lead to rising R&D costs and order uncertainty. Investors should focus on companies’ global layout capabilities.

Besides chips and servers, who are other potential beneficiaries?

Investors can focus on companies providing key components and services. For example, companies offering ASIC (application-specific integrated circuit) design services, like MediaTek. Additionally, networking equipment providers mastering high-speed optical modules and switch technology, like Accton, are also key beneficiaries.