AI Demand Boosts Taiwan’s Outlook as UBS Forecasts Strong Profit Growth

Table of Contents

• You might want to know
• Main Topic
• Key Insights Table
• Afterwards...

You might want to know

• Why does UBS expect Taiwan’s companies to benefit from the expanding AI wave?
• How can investors respond to market volatility while keeping long-term growth and income in view?

Main Topic

Artificial intelligence demand is spreading beyond a narrow group of technology companies and into a broader range of industries. As that expansion supports orders and business activity across the supply chain, Taiwan is positioned to benefit from its strengths in semiconductors and hardware. The latest assessment from UBS Wealth Management’s Chief Investment Office says that Taiwanese companies could be among the major beneficiaries of the current technology cycle. UBS forecasts that corporate earnings in Taiwan will rise by 42% in 2026 and 37% in 2027, with the outlook for 2027 stronger than the growth expected for this year in the headline assessment.

The forecast comes amid a market environment shaped by several sources of uncertainty. Bond yields have been climbing, energy prices have increased, and political developments ahead of the US midterm elections could contribute to short-term swings. UBS’s view, however, is that these factors should be considered alongside underlying business and economic conditions. Earnings, interest rates and energy prices all matter to investors, but the office emphasizes that corporate profitability and economic activity remain resilient. For long-term investors, the implication is not necessarily to retreat entirely into defensive positions. Instead, a balanced allocation may help combine growth opportunities, income and risk management.

Junli Hu, Head of Asset Allocation for Asia at UBS Wealth Management’s Chief Investment Office, said that market uncertainty has increased recently. Higher bond yields and oil prices, together with the approaching US midterm elections, may make political news a source of near-term volatility. Hu’s broader point is that short-term price moves do not by themselves determine the long-run investment outlook. Fundamental developments—including earnings, rates and energy costs—are more consequential for markets over the medium and long term. Maintaining a balanced portfolio can therefore help investors avoid making abrupt decisions in response to headlines while continuing to participate in potential market gains.

Corporate earnings remain an important foundation for the equity outlook. Hu expects third-quarter earnings per share for the S&P 500 to grow 28% year over year. The expected improvement is supported by robust demand for artificial intelligence, a better industrial cycle and continued resilience among higher-income consumers. These factors span technology and the broader economy, suggesting that the earnings story is not limited to one company or one part of the market.

AI remains a central engine of market expansion, but investors are increasingly looking beyond the amount of money being spent. The key question is whether companies can turn investment into actual sales and returns. UBS expects average revenue growth in cloud businesses to accelerate from 48% in the June quarter to 58% in the September quarter. This forecast points to continued momentum in cloud services, while the focus on commercialization reflects a natural next stage of the AI investment cycle. Spending and infrastructure expansion can create capacity, but businesses ultimately need to demonstrate that customers are adopting services and that the investment is generating revenue.

Some parts of the computing-services sector face financing and execution pressures. Even so, rising chip leasing prices and strong earnings among semiconductor companies suggest that overall demand remains resilient. UBS also sees earnings growth spreading into other areas rather than remaining concentrated in a small number of technology businesses. That breadth matters because a wider range of beneficiaries can make the market’s earnings base less dependent on any single segment. It also helps explain why Taiwan’s exposure extends beyond advanced chips.

In the United States, new manufacturing orders have remained in expansion territory for 9 consecutive months, a development that may support industrial and other cyclical shares. Across Asia excluding Japan, earnings growth has been notably ahead of share-price performance. UBS expects corporate earnings in the region to increase by 20% next year. The gap between earnings and share prices is relevant to the regional outlook because it indicates that companies’ profit performance has not been fully mirrored by market performance so far.

Taiwan’s potential benefit from AI demand is also broadening across the supply chain. Demand that initially centered on advanced chips has extended to packaging and testing, chip design, servers, power solutions and cooling. These connected businesses support the infrastructure required to operate data centers, making data-center demand a major source of growth. Taiwan’s role across several stages of technology production gives the market exposure to more than one narrow component of the AI ecosystem. The forecast of strong profit growth reflects this wider range of potential business activity, while remaining dependent on continued demand and companies’ ability to deliver.

Fixed income has also undergone a significant repricing. The yield on the US 10-year Treasury briefly reached 5.36%, its highest level since 2002. Inflation, monetary policy, fiscal concerns and financing needs have all added pressure for yields to move higher. Higher yields can reduce the market value of existing bonds, but they also increase the income available to investors purchasing bonds at current levels. UBS notes that today’s higher income provides a larger cushion: over the coming year, a substantial rise in rates would be required for capital losses to offset the income earned over the holding period.

Energy is another important source of uncertainty. Geopolitical tensions have brought energy supply back into focus, while disruptions in the Middle East and the Russia-Ukraine conflict have kept physical markets relatively tight. Higher energy prices can add to inflation and weigh on economic growth. UBS estimates that an increase in oil prices could reduce global economic growth by approximately 0.3% to 0.5%. This potential effect illustrates why energy developments matter beyond commodity markets: they can influence household and business costs, inflation expectations and the broader economic outlook.

Against this backdrop, UBS does not recommend shifting entirely to a defensive stance. The firm remains positive on equities, pointing to resilient corporate earnings and economic activity despite the risks associated with energy prices, geopolitics and elections. A diversified core portfolio can provide exposure to potential growth while reducing dependence on a small number of individual shares. UBS also suggests that investors consider trimming excessive concentration in individual stocks when markets rise. This approach addresses portfolio risk without requiring investors to abandon the market altogether.

In fixed income, the recent repricing has improved the return potential of high-quality bonds. UBS has a relative preference for high-quality bonds with medium- to longer-term maturities as a way to enhance income and diversification. For long-term investors, the broader message is that waiting for every uncertainty to disappear may not be necessary or practical. Gradually putting idle funds to work can help maintain market participation, while diversification and a balanced allocation can help manage the risks that accompany changing economic and political conditions.

These recommendations are grounded in a distinction between short-term volatility and longer-term fundamentals. Higher yields, energy costs and political developments may move markets in the near term, but they do not automatically invalidate the earnings outlook. At the same time, strong forecasts are not guarantees: AI-related businesses still need to convert investment into commercial results, and Taiwan’s expected earnings growth depends on demand across the supply chain continuing to hold up. A measured strategy therefore recognizes both the opportunity and the uncertainties, using diversified exposure rather than relying on a single theme or security.

Key Insights Table

Afterwards...

The outlook for Taiwan and the wider market will depend on whether AI investment continues to translate into sustainable revenue and earnings, and whether demand spreads across the supply chain as expected. Investors will also need to monitor yields, energy markets and political developments, which may sustain short-term volatility. In UBS’s view, those risks do not erase the potential supported by corporate profitability and economic activity. A diversified portfolio, selective exposure to growth, and quality fixed income can help investors stay engaged while managing uncertainty. Rather than waiting for markets to become completely predictable, long-term investors may consider a measured, gradual approach that balances opportunity with resilience.