Goldman Sachs raises its 12-month TAIEX target to 40,000, as the AI capex cycle continues to support earnings for Taiwan's technology supply chain

Overview

This is a Goldman Sachs Taiwan weekly report focusing on TAIEX hitting a new high, foreign inflows, Taiwan companies' 1Q26 earnings season, the AI capex cycle, and changes in TSMC-related positioning and ADR premium. The report's main conclusion is that earnings expectations for the Taiwan market continue to be revised upward, prompting Goldman Sachs to raise its 12-month TAIEX target; however, TSMC's relatively muted post-earnings performance reflects profit-taking, fund concentration constraints, and positioning adjustment pressure.

Core views

The report's core views include: first, Taiwan market performance was strong in the short term, with TAIEX and MSCI Taiwan up about 3.9% and 3.7%, led mainly by ex-TSMC semiconductors, chemicals/energy, and tech hardware. Second, foreign investors' cross-sector net buying of about US$5.1bn provided funding support for the index rally, but net short futures positions also increased, indicating sentiment is not one-way bullish. Third, Goldman Sachs raised its 12-month TAIEX target to 40,000 based on upward revisions of 2026/27E earnings growth forecasts to 34%/24%. Fourth, AI server demand and higher capex forecasts from U.S. and Chinese cloud service providers continue to support Taiwan semiconductors and the technology supply chain. Fifth, TSMC remains a key asset, but regional funds are still underweight TSMC by about 210bp, and concentration risk may bring additional selling pressure from long-only funds.

Analysis framework

The report combines index targets, EPS forecasts, sector performance, foreign and local fund flows, active fund positioning, ETF flows, valuation, earnings revisions, and TSMC ADR premium reversal indicators for a multidimensional market assessment. The index target is driven primarily by top-down earnings forecast upgrades, while fund flow and positioning data are used to explain short-term market behavior.

Methodology notes

• Index target and earnings forecast12-month TAIEX target and EPS forecast framework

  Deriving an upward revision to the TAIEX target by raising 2026/27E earnings growth forecasts.

  Goldman Sachs raised its 2026/27E earnings growth forecasts from 28%/22% to 34%/24%, and lifted its 12-month TAIEX target from 36,000 to 40,000, implying about 9% upside.

• Fund flows and positioningMonitoring foreign investors, ETFs, and active fund positioning

  Using QFII net buying, futures positioning, ETF flows, and active fund weights to explain market momentum and potential selling pressure.

  The report shows QFII net buying of about US$5.1bn, while foreign net short futures positions increased by about US$2.8bn; regional funds hold an 11.4% weight in TSMC, still about 210bp underweight versus the benchmark.

• Relative value and trading indicatorsTSMC ADR Premium Reversal Index GSSRTSMR

  Tracking TSMC's ADR premium and potential reversal signals.

  TSMC's ADR premium fell to about 16%, and GSSRTSMR was -0.2. The report says there may be a rebound opportunity, but judgment should still incorporate volatility, EPS revisions, fund flows, and positioning factors.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TAIEX

  Core index target asset

  Strengths

  Earnings forecast upgrades, foreign net inflows, and the AI capex cycle support the technology supply chain, with the 12-month target raised to 40,000.

  Weaknesses

  The index is already at a record high, with further upside of about 9%, making it sensitive in the short term to fund flows and earnings delivery.

  Comparison

  TAIEX rose about 3.9% for the week, outperforming MXAPJ by about 1.5 percentage points.

  Risks

  An increase in foreign net short futures positions, valuation recovery, and earnings season results below expectations could weaken upside momentum.

• TSMC / TSM.US

  Core heavyweight asset in the Taiwan market and semiconductor chain

  Strengths

  Revenue and gross margin outlook improved at the margin, AI demand remains strong, and the AI/HPC product mix plus CoWoS demand support structural gross margin improvement.

  Weaknesses

  The stock rose only about 1.5% after earnings, reflecting profit-taking; regional funds remain underweight, but are also constrained by concentration risk.

  Comparison

  Ex-TSMC technology is seen as a beneficiary of diversification away from TSMC concentration risk, with performance and positioning potentially better than TSMC itself.

  Risks

  N2 ramp-up and chemical costs may pressure 2H26 margins, along with ADR premium volatility, fund concentration limits, and selling pressure from long-only funds.

• Taiwan ex-TSMC technology stocks

  TSMC trading proxy and diversification beneficiary asset

  Strengths

  Active funds are meaningfully overweight, benefiting from diversification away from TSMC concentration risk and earnings upgrades in the AI supply chain.

  Weaknesses

  Valuations and positioning may already reflect some optimistic expectations.

  Comparison

  The report says ex-TSMC tech remains the largest overweight area and is more favored than TSMC in diversification trades.

  Risks

  If AI capex expectations are revised down or technology EPS revisions slow, related assets may come under pressure.

• Taiwan ETFs and dividend ETFs

  Assets for observing fund flows

  Strengths

  Non-dividend ETFs saw about US$300mn of inflows, showing that some passive products still have demand.

  Weaknesses

  Dividend products saw about US$850mn of outflows.

  Comparison

  Outflows from dividend ETFs and inflows into non-dividend products suggest market preference may be shifting from yield-oriented exposure toward growth or index exposure.

  Risks

  Broader ETF outflows could affect stocks with high-dividend and concentrated passive ownership.

Key data

• 12-month TAIEX target40,000Raised from 36,000, implying about 9% further upside.
• Current TAIEX index level36,804Data shown in the market/sector summary table of the report.
• TAIEX and MSCI Taiwan performance+3.9% / +3.7%TAIEX and MSCI Taiwan rose for the week, outperforming MXAPJ by about 1.5 percentage points.
• QFII net buying of cash equitiesUS$5.1bnForeign investors' net buying of Taiwan cash equities across sectors.
• Increase in foreign net short futures positionsUS$2.8bnNet short futures positions increased even as cash equities were bought.
• 2026/27E earnings growth forecast34% / 24%Raised from 28%/22%.
• Taiwan 1Q26 earnings growth expectation39% YoY / 19% QoQConsensus expectation for overall Taiwan 1Q26 earnings growth, driven by semiconductors and banks.
• Taiwan 1Q26 sales growth expectation27% YoY / 1% QoQConsensus sales growth expectation.
• TSMC ADR premium16%Down about 2 percentage points from the prior period.
• Regional funds' TSMC weight11.4%Still about 210bp underweight versus the EM benchmark weight of 13.5%.
• Global server TAM forecastUS$652bn / US$827bn / US$1,067bnGoldman Sachs technology analysts expect global server TAM to grow 45%/27%/29% YoY in 2026-28E.
• U.S. cloud service provider capex growth forecast63% / 15% / 10%Goldman Sachs' U.S. internet team expects leading U.S. CSP capex to grow YoY in 2026-28E.

Impact & implications

In terms of investment implications, the report supports continued focus on Taiwan's technology supply chain and AI server capex beneficiaries, especially semiconductors, ex-TSMC technology, and tech hardware; at the index level, earnings upgrades still leave room for upside. However, the funding structure shows the market is not rising without risk: foreign cash equity buying coexists with futures shorts, TSMC concentration constraints may limit continued long-only fund buying, and post-earnings profit-taking also points to short-term volatility risk.

Risks

• Foreign investors increased net short futures positions while net buying cash equities, which may indicate hedging or unstable short-term risk appetite.
• TSMC concentration risk may prompt long-only funds to continue selling or limit further additions.
• TSMC N2 ramp-up and rising chemical costs may pressure 2H26 margins.
• TAIEX has already reached a record high; if earnings upgrades fall short of expectations, valuations and the index target may face downward revision risk.
• Outflows from dividend ETFs may pressure related high-dividend holdings.
• If AI server demand or capex from U.S. and Chinese CSPs comes in below expectations, the earnings upgrade thesis for Taiwan's technology supply chain will be affected.

What to watch

• Taiwan companies' 1Q26 earnings season, with most companies expected to report by mid-May.
• TSMC's subsequent revenue guidance, gross margin outlook, N2 ramp-up costs, and CoWoS capacity expansion.
• Whether QFII cash equity inflows continue, and whether net short futures positions keep expanding.
• Changes in active fund allocations to Taiwan and TSMC, especially whether underweights or selling pressure from regional EM/AEJ funds narrow.
• The divergence in flows between Taiwan dividend ETFs and non-dividend ETFs.
• Whether 2026-28E capex forecasts for leading U.S. and Chinese cloud service providers continue to be revised upward.
• Changes in TSMC ADR premium and the GSSRTSMR reversal indicator.
• Macro data such as Taiwan export orders, industrial production, and retail sales.