ROI-Why Taiwan’s AI moat trumps South Korea's memory bet: Manishi Raychaudhuri

As Asia's high-stakes AI race faces its biggest ​hurdles to date, Taiwan may have an edge over South Korea. Asia’s tech-heavy equity markets have had a tough few ​months and an even tougher few days. Democrats' sweeping victories in last week's US midterm ‌elections ​have raised concerns about a slowdown in the AI boom, sending Asian equities reeling.

But the weakness hasn't been doled out equally. South Korea's KOSPI has plummeted more than 44% from its June 22 peak, while Taiwan's TAIEX is down only 20% from its October 6 high. Both are still showing strong year-to-date gains, but the KOSPI, up about 17%, now trails the TAIEX, which is up 35%. The ‌divergence in valuations is even starker. The KOSPI's forward price-to-earnings ratio (P/E) has fallen from 12.4 in October 2025 to 4.1 on November 6, while the TAIEX's multiple has held within a range of 14 to 20. FactSet consensus forecasts put Taiwan's current forward P/E at 14.4, more than three times South Korea's.

What explains this? The two markets' very different AI exposures. BREADTH BEATS CONCENTRATION

The fortunes of both markets are inextricably linked to the AI capital-spending boom, but their underlying corporate drivers differ substantially. Investment opportunities in Taiwan span the entire AI supply chain.

There’s Taiwan Semiconductor Manufacturing Co (TSMC) , ‌of course, one of the world’s leading chipmakers, which accounts for almost 40% of the TAIEX. But there’s also MediaTek in chip design, ASE Technology in advanced packaging, Hon Hai Precision Industry (Foxconn) and Quanta Computer in server design and assembly, and Delta Electronics in power ‌and cooling systems. On top of this, the TAIEX includes a long tail of technology stocks that collectively account for almost 23% of the index. In contrast, South Korea's AI exposure is heavily concentrated in the deeply cyclical memory sector, through Samsung Electronics and SK Hynix. Together, they account for roughly half of the KOSPI, while all other technology companies combined represent just 6%.

This helps explain why concentration risk worries investors less in Taiwan, even though technology accounts for over 70% of its market capitalisation, according to FactSet, compared with roughly 55% in South Korea. South Korea's concentration risk is further heightened by the fact that recent growth in its two tech giants has been driven ⁠largely by soaring ​memory prices. This industry is highly cyclical, so any slump in prices ⁠could force a sharp cut to earnings expectations — a fear that may have driven losses last week.

Compounding the risk, South Korean retail investors have taken on substantial margin debt to buy high-risk single-stock exchange-traded funds, making the market highly vulnerable to more sharp reversals. While margin loan balances fell in July, they rose again in August, ⁠September and the first half of October, increasing the risk of amplified volatility if AI sentiment simply continues to head south. DIFFERENT KINDS OF AI BETS

Taiwan's leading technology companies also have a distinct advantage over their South Korean peers. They benefit from formidable competitive moats, with dominant positions in critical parts of the ​AI supply chain. TSMC controls 73% of the pure-play foundry market and between 90% and 99% of the market for the smallest advanced chips. Additionally, Taiwan’s Hon Hai, the world's largest contract electronics maker, controls 40% of the AI server-assembly market ⁠and is targeting a 50% share within two years. Replicating Taiwan's complex chip-manufacturing processes would be capital-intensive, time-consuming and dependent on proprietary intellectual property.

By contrast, South Korean memory leaders, Samsung and SK Hynix, which currently dominate the industry alongside US-based Micron, have a manufacturing process that is easier to replicate. Consequently, they are already facing growing competition from Chinese rivals such ⁠as ​CXMT, particularly in high-bandwidth memory. COULD IT REVERSE?

Even given these fundamentals, has the massive valuation gap between Taiwan and South Korea simply become too big to persist? Taiwan has long had a higher P/E multiple than South Korea, with a 10-year average premium of 50%. But the present premium is a whopping 260%, based on FactSet calculations.

Investors have therefore become increasingly jittery about the "buy Taiwan, sell Korea" trade. In October, foreigners' net selling in South Korea was a modest $14 billion, compared with $31 billion in Taiwan. In the short term, the valuation ⁠gap may attract bargain hunters. But as recent selling has demonstrated, South Korea's low multiple alone is not enough to reverse foreign outflows as investors reassess returns on AI spending and the durability of the capex boom.

Over the long term, Taiwan’s structural tailwinds ⁠still appear indisputable. AI may be ushering in a new world, but in finance, ⁠wide moats and diversification continue to look like a winning formula — especially when the going gets tough. (The views expressed here are those of Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd and the former head of Asia-Pacific Equity Research at BNP Paribas Securities.)

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(Writing by Manishi Raychaudhuri; Editing by Marguerita Choy and Anna Szymanski)