Key Updates
EWT has advanced 2.11% to $65.48 since the December 1st report, extending its YTD gain to 26.51% and six-month rally to 21.85%. The fund's momentum remains firmly positive despite recent volatility in global semiconductor markets. Taiwan's economy has surged to its fastest growth rate in 15 years at 7.37%, driven by unprecedented AI chip demand, while TSMC continues to secure record orders from Nvidia and other major clients. The investment thesis remains intact as structural AI infrastructure buildout accelerates, though emerging competition and geopolitical tensions present evolving risks. New developments include Taiwan's economic outperformance, intensifying US-Taiwan trade negotiations, and TSMC's legal actions to protect intellectual property.
Current Trend
EWT trades at $65.48, up 26.51% YTD, demonstrating sustained bullish momentum despite a modest 0.83% decline over the past month. The fund has gained 21.85% over six months, reflecting strong institutional confidence in Taiwan's semiconductor sector. Recent price action shows consolidation near current levels following the sharp 8.99% rally documented in the previous report, with the fund maintaining support above $64. Short-term volatility has increased following broader tech sector concerns, evidenced by the Nasdaq's 2.3% decline on November 14th that triggered a 2.6% drop in South Korea's Kospi and weakness across Asian chip stocks. However, EWT has demonstrated resilience, recovering quickly from these pullbacks and establishing a higher low pattern. The 1.50% gain over both one-day and five-day periods indicates renewed buying interest at current levels.
Investment Thesis
The core thesis centers on Taiwan's dominant position in advanced semiconductor manufacturing and its critical role in the global AI infrastructure buildout. Taiwan produces over 90% of the world's most advanced chips through TSMC, which has secured $500 billion in order visibility from Nvidia and is experiencing tight supply conditions for its 3-nanometer process technology. Taiwan's economy is expanding at 7.37% in 2025, the fastest rate in 15 years, driven by AI demand that pushed Q3 2024 exports up 32%. The structural tailwind from AI server infrastructure deployment remains intact, with major cloud providers increasing their 2026 AI spending outlooks. TSMC's 3-nanometer revenues are projected to reach $46 billion in 2026, representing 30% of total revenues, while the company has raised employee compensation by 45% over five years to secure engineering talent. Taiwan's "Silicon Shield" strategy provides geopolitical stability, with the US confirming no punitive tariffs on the chip sector in exchange for Taiwan's $400 billion investment commitment in US facilities.
Thesis Status
The investment thesis has strengthened materially since the previous report. Taiwan's 7.37% GDP growth forecast significantly exceeds expectations and confirms the AI demand surge is translating into broad economic impact. Taiwan's statistics agency raised its 2026 GDP forecast to 3.54% from 2.81%, indicating sustained momentum beyond 2025. Nvidia's request for increased wafer production from TSMC validates the structural demand thesis, with the company's data center business generating $51.2 billion in Q3 sales, up 66% year-over-year. The US-Taiwan trade agreement framework removes a key overhang, as Taiwan's minister confirmed the US will not impose punitive tariffs on semiconductors. However, new risks have emerged: TSMC's legal action against a former executive who joined Intel highlights intensifying competitive pressures and IP protection concerns, while the Asia-Pacific region faces a shortage exceeding 200,000 engineers, potentially constraining expansion capacity.
Key Drivers
AI Infrastructure Demand: Nvidia's $500 billion order visibility and request for increased TSMC wafer production underscores sustained demand. CEO Jensen Huang cited "very strong demand" for next-generation Blackwell and successor Rubin chips, with JPMorgan forecasting TSMC's 3nm revenues will reach $46 billion in 2026.
Taiwan Economic Outperformance: Taiwan's 7.37% growth rate represents the fastest expansion in 15 years, with Q3 2024 GDP up 8.21% and exports jumping 32%. This allows Taiwan's economy to grow faster than China's, a rarity for a developed economy, validating the structural shift in semiconductor demand.
US-Taiwan Trade Framework: Taiwan's minister confirmed the US will not impose punitive tariffs on semiconductors, with both countries reaching consensus on a trade agreement. Taiwan's $400 billion investment commitment in US facilities, including TSMC's $165 billion Arizona expansion, secures market access while maintaining cutting-edge R&D domestically.
Competitive Dynamics: TSMC filed a lawsuit against former SVP Wei-Jen Lo for allegedly breaching non-compete agreements after joining Intel, with Taiwan prosecutors investigating suspected trade secret leaks. This highlights intensifying competition as Intel attempts to close the manufacturing gap.
Engineering Talent Shortage: The Asia-Pacific region faces a shortage exceeding 200,000 engineers, with Taiwan alone short 34,000 skilled workers as of May. Despite TSMC raising employee packages by 45% over five years, demographic decline poses structural constraints on expansion capacity.
Technical Analysis
EWT has established a clear uptrend channel since mid-2024, with the fund trading near the upper boundary at $65.48. The recent consolidation between $64-$66 follows the sharp rally from $58.84 in early December, suggesting healthy profit-taking rather than trend reversal. Key support has formed at $64.00, representing the previous resistance level that was decisively broken. The 1.50% gain over both one-day and five-day periods indicates renewed accumulation at current levels. Volume patterns suggest institutional participation remains robust, particularly during the November 20th rally when Asian chip stocks surged following Nvidia's earnings beat. The fund's relative strength versus broader emerging market indices remains elevated, with EWT outperforming significantly on a YTD basis. Resistance lies at $66.50-$67.00, representing the psychological round number and potential profit-taking zone. The 21.85% six-month gain has pushed technical indicators into overbought territory, warranting caution on near-term momentum. However, the sustained uptrend structure remains intact with higher lows and higher highs, suggesting any pullback toward $63-$64 would likely attract buyers.
Bull Case
- Unprecedented AI-Driven Economic Growth: Taiwan's economy is growing at 7.37% in 2025, the fastest rate in 15 years, with Q3 2024 GDP up 8.21% and exports surging 32% primarily due to AI chip demand. The statistics agency raised its 2026 forecast to 3.54%, indicating sustained multi-year momentum that directly benefits EWT holdings.
- Structural Demand from Nvidia's $500B Order Book: Nvidia CEO Jensen Huang requested increased wafer production from TSMC for Blackwell and Rubin chips, citing "very strong demand," with JPMorgan projecting TSMC's 3nm revenues will reach $46 billion in 2026, representing 30% of total revenues with supply remaining tight.
- US Trade Agreement Removes Tariff Overhang: Taiwan's minister confirmed the US will not impose punitive tariffs on semiconductors, with both countries reaching consensus where Taiwan supports US chip development in exchange for tariff relief, eliminating a major risk factor while securing market access through $400 billion in US investments.
- Dominant Market Position in Advanced Manufacturing: TSMC produces over 90% of the world's most advanced chips, with major clients including Nvidia, Apple, Broadcom, Qualcomm, Amazon, and Bitmain all competing for capacity, creating a structural supply-demand imbalance that supports pricing power.
- Cloud Provider Spending Acceleration into 2026: Major cloud providers including Amazon, Microsoft, Google, and Meta have all raised their AI infrastructure spending outlooks for 2026, with recent deals including Anthropic committing $30 billion for Azure capacity, ensuring sustained demand for Taiwan-manufactured chips.
Bear Case
- Critical Engineering Talent Shortage: The Asia-Pacific region faces a shortage exceeding 200,000 engineers, with Taiwan alone short 34,000 skilled workers as of May, while demographic decline shows South Korea's fertility rate at 0.75 and Taiwan's at 0.9, far below the 2.1 replacement level, structurally constraining expansion capacity despite record compensation.
- Intensifying Competitive Threats and IP Risks: TSMC filed a lawsuit against former SVP Wei-Jen Lo for allegedly breaching non-compete agreements after joining Intel, with Taiwan prosecutors investigating suspected trade secret leaks, while Japanese startup Rapidus plans 1.4-nanometer production by 2029, threatening TSMC's technological lead.
- AI Investment Return Uncertainty: Concerns persist among investors about whether billions invested in AI infrastructure will generate profitable returns, with questions raised about GPU depreciation schedules and economic viability of current capacity buildout, potentially leading to a spending pullback.
- Geopolitical Tensions and Military Risk: China deployed military ships near disputed waters and issued travel warnings after Japanese Prime Minister Sanae Takaichi suggested potential military intervention to defend Taiwan, escalating regional tensions that could disrupt semiconductor supply chains and trigger capital outflows from Taiwan-focused investments.
- Tech Sector Valuation Concerns and Rate Uncertainty: Global equity markets experienced broad sell-offs with the Nasdaq falling 2.3% amid concerns over elevated tech valuations and AI sector sustainability, while Boston Fed President Susan Collins indicated "a relatively high bar for additional easing in the near term", casting doubt on rate cuts that could pressure high-multiple semiconductor stocks.