Rising AI Investment in Taiwan's Tech Sector
In the ever-evolving landscape of emerging technologies, Taiwan's tech firms are demonstrating resilience against market volatility by successfully securing investments for artificial intelligence (AI) initiatives. Despite global economic fluctuations, Taiwanese companies continue to attract substantial investor interest, particularly in AI-related projects.
Convertible Bonds as a Preferred Funding Tool
One notable trend is the use of convertible bonds by companies like Quanta Computer Inc., a key supplier for Apple Inc. Quanta aims to raise up to $1 billion through these hybrid securities, which are favored due to their lower interest rates compared to traditional debt. Convertible bonds appeal to investors by offering the option to convert the bonds into equity, balancing risk and potential returns.
Support from Financial Giants
The fundraising activities are backed by major financial institutions, including Citigroup Inc., Yuanta Securities Co., and HSBC Holdings Plc. According to Rob Chan from Citigroup, the demand for AI investments remains strong despite market turbulence, enabling companies to secure necessary funds for growth.
Global Enthusiasm Fuels AI Expansion
The global enthusiasm for AI is significantly influencing the strategic plans of chipmakers and tech firms in Taiwan and across Asia. These companies are driven by the need to expand and innovate, leading to an increase in borrowing through convertible bonds. The lower coupon rates of these bonds make them an attractive option in the current high-interest rate environment.
Record Dollar Fundraising in 2024
Taiwanese companies have already surpassed previous fundraising records, with $1.3 billion in dollar-denominated convertible bonds issued in 2024. This figure exceeds the annual total of the past two years. In addition, they have raised $2.9 billion through additional share sales, marking the highest since 2007.
Impact of AI on the Taiwanese Market
The AI boom is transforming Taiwan's market dynamics. For instance, Taiwan Semiconductor Manufacturing Co. has seen its US-listed shares rise by 66% this year, while Quanta's stock has increased by 20% in the Taipei market. Such growth underscores the fundamental shift in business operations and capital requirements driven by AI advancements.
Hedging Against Currency Fluctuations
The surge in dollar funding also reflects a strategic response to Taiwan's currency challenges. With the Taiwan dollar declining by about 5% against the US dollar, companies are leveraging foreign currency fundraising to mitigate risks associated with currency depreciation.
Outlook for the Future
Looking ahead, experts like Brian Chau from UBS Group AG predict continued activity in Taiwan’s equity capital markets. Despite a recent slowdown in AI stocks, additional share sales are anticipated over the next 12 to 18 months, as companies seek to capitalize on ongoing interest in AI technologies.
Broader Regional Trends
The pattern observed in Taiwan is mirrored in China, where firms like Alibaba Group Holding Ltd. and JD.com Inc. have also engaged in dollar-denominated convertible debt issuance. This trend highlights a broader regional strategy to strengthen financial positions and support share buybacks amid fluctuating market conditions.
