Taipei has vaulted past New Delhi to claim the world's fifth-largest stock market, a milestone powered almost entirely by artificial intelligence demand and the dominance of Taiwan Semiconductor Manufacturing Co. (TSMC). The benchmark index now stands at US$4.95 trillion in market value, trailing only the United States, China, Japan, and Hong Kong.
TSMC alone accounts for roughly 42% of Taiwan's benchmark index, and its shares have climbed 46% this year. The chipmaker's fortunes are now virtually indistinguishable from global appetite for AI hardware, turning the island into a toll booth on the road to artificial intelligence. Every time the world upgrades its computing power, Taiwan collects value.
A Leveraged Bet on AI
Taiwan's economy reads like a leveraged wager on AI demand. Exports jumped 39% year-on-year in April, following a staggering 62% surge in March. Semiconductor shipments rose 40.5%, while the broader machinery and electrical equipment category—roughly 84% of all exports—expanded 48.7%. Over the first four months of 2025, Taiwan exported $263.35 billion in goods, up 47.8% from a year earlier.
Strong chip demand is overpowering weak domestic spending and the drag from Iran-war-driven inflation on household confidence. The result: Taiwan's economy blasted ahead at 13.7% in the first quarter, its fastest pace since 1987.
Yet the rally raises questions about sustainability. As analyst Kirsten Chang at ETF Trends notes, while the U.S. wrestles with shifting Federal Reserve policy, Japan has found a Goldilocks balance. But for Taiwan, the concentration risk is acute. Regulatory shifts in Taipei may add more fuel: the financial regulator has raised the cap on how much a domestic equity fund can put into a single stock, allowing up to 25% of net assets in companies with a weighting above 10% on the exchange. At present, only TSMC meets that threshold.
Parallels Across North Asia
South Korea shares a similar dynamic. The Kospi is up 91% this year, powered by chip titans SK Hynix and Samsung Electronics, which have surged 215% and 149%, respectively. The rally has prompted Citigroup analysts to wonder whether Alan Greenspan's 1996 warning of "irrational exuberance" might apply to Seoul. In a recent report, Citi writes that it's too early to predict a huge correction but warns the "Kospi appears significantly more overbought compared to the US market," recommending a "prudent approach would be to take profits on half of the positions."
The rally is giving President Lee Jae-myung some breathing room on his pledge to end the long-lamented "Korean discount." One clear beneficiary is the National Pension Service, whose assets jumped from 1,212 trillion won ($805 billion) at end-2024 to 1,458 trillion won ($970 billion) in 2025. Earlier this month, they approached 1,800 trillion won ($1.2 trillion). Analyst Jun Young Choi of Yulchon notes the fund's finances have "significantly stabilized," but cautions: "The problem is that no market rises forever. Pessimists note that excessive optimism and speculation during technological shifts have repeatedly created bubbles."
Japan is also catching a YOLO halo effect. Its electronics makers, machinery firms, and banks are riding AI momentum, pushing the Nikkei 225 to record highs above 67,000 (now around 65,800). BofA Securities is cautioning about a possible short-term correction by June, especially as fallout from the Iran war cools risk appetite. Others see Japan's gains as the payoff from years of corporate-governance reforms and competitiveness upgrades.
Whether Japan remains a safe harbor will hinge heavily on whether U.S. President Donald Trump can find a way out of his war with Iran. With 95% of Japan's oil coming from the Middle East and the yen "grossly undervalued," as Eurizon CEO Stephen Jen puts it, Asia's No. 2 economy is highly exposed. The yen's real effective exchange rate in April fell to its lowest level since Japan shifted to floating rates in 1973, meaning Japan will be importing energy, food, and construction inputs amid a weakening currency and a rising dollar.
Taiwan's rally looks even more astonishing given its demographics: a 23-million-person economy outpacing giants despite having less than 1/60th of India's population. But as Choi warns, "It remains unclear whether the current rally marks a bubble's peak or the dawn of a new era." For now, the AI tide lifting all of North Asia shows no sign of ebbing—but the risks of irrational exuberance are mounting.
