Record Foreign Inflows into South Korean and Taiwanese Tech Stocks Amid AI-Driven Optimism

The global AI revolution is reshaping the semiconductor landscape, and South Korea and Taiwan are at the epicenter of this transformation. In Q2 2025, foreign capital poured $25.7 billion into the tech stocks of these two nations, driven by surging demand for AI infrastructure, geopolitical trade agreements, and corporate governance reforms. This influx has created a unique strategic buying window for investors, but the question remains: Are these valuations justified, or is the market overbought?

The AI-Driven Semiconductor Surge

The semiconductor industry is projected to reach $697 billion in revenue in 2025, with AI accelerator chips accounting for a significant portion. South Korea's SK Hynix (000660.KS) and Taiwan's TSMC (TSMC.ST) are leading the charge, with SK Hynix's memory chips and TSMC's advanced manufacturing capabilities forming the backbone of AI computing.

Foreign inflows into South Korean equities hit $4.52 billion in July 2025—the largest since February 2024—while Taiwan's market attracted $7.78 billion, a near two-decade high. This momentum is fueled by the U.S.-South Korea trade deal, South Korea's Corporate Value-Up Programme, and Taiwan's dominance in AI supply chains.

Valuation Metrics: A Tale of Two Markets

South Korea: Undervalued Gems

SK Hynix's trailing P/E of 6.98 and forward P/E of 5.88 are among the lowest in the sector, with a PEG ratio of 0.51, indicating strong growth expectations at a discount. Its EV/EBITDA of 4.24 further underscores its affordability. The broader South Korean market trades at a P/E of 11.43, 44% below the global average and 25% below emerging markets.

However, South Korea's recent tax reforms—raising corporate and securities transaction taxes—sparked a 3.9% one-day drop in the KOSPI. While long-term investors may view this as a buying opportunity, short-term volatility remains a risk.

Taiwan: Premium for Leadership

TSMC, the world's largest foundry, commands a trailing P/E of 25.12 and EV/EBITDA of 12.00, reflecting its market dominance. Its ROE of 34.56% and ROIC of 19.91% justify the premium, as does its $31.46 billion in free cash flow (TTM). Analysts project a 17.59% CAGR in EPS over five years, with a "Strong Buy" consensus and a $258.33 average price target (6.82% above current levels).

Despite the high valuation, TSMC's EV/FCF of 30.73 and EV/Sales of 8.31 suggest efficiency in capital deployment. For investors seeking growth in a high-margin sector, TSMC remains a compelling play.

Technical Indicators: Momentum vs. Caution

South Korean semiconductor stocks, including SK Hynix and Samsung, have surged above their 200-day moving averages by 18.98%, signaling a bullish long-term trend. The RSI for SK Hynix (60–65) and MACD (positive) confirm upward momentum.

In contrast, TSMC's 14-day RSI of 49.16 and MACD of 4.44 suggest a neutral-to-bullish stance, but its 5-day moving average (Sell signal) indicates short-term consolidation. The Williams %R of -87.30 implies the stock is near oversold territory, potentially setting up for a rebound.

Strategic Buying Window: Value vs. Growth

South Korea offers value-driven opportunities with undervalued equities like SK Hynix, while Taiwan's TSMC represents growth potential in a high-margin sector. The key is balancing these exposures based on risk tolerance:
- South Korea: Ideal for investors seeking discounted valuations and long-term growth in a market with improving governance.
- Taiwan: Suited for those willing to pay a premium for a company with unparalleled technical execution and AI infrastructure leadership.

Risks and Considerations

1. South Korea's Tax Reforms: While aimed at boosting dividends and transparency, they could dampen short-term investor sentiment.
2. Geopolitical Tensions: Both markets face risks from U.S.-China trade dynamics and regional instability.
3. Valuation Moderation: A potential slowdown in the tech cycle in H2 2025 could lead to corrections, particularly in overbought names like TSMC.

Conclusion: A Dual-Strategy Approach

The AI-driven semiconductor boom has created a rare alignment of strong fundamentals, favorable valuations, and technical momentum in South Korea and Taiwan. For a diversified portfolio, consider:
- Undervalued South Korean equities (e.g., SK Hynix) as a core holding for long-term growth.
- Premium Taiwanese leaders (e.g., TSMC) as a satellite position to capitalize on AI infrastructure demand.

As always, monitor macroeconomic shifts and geopolitical risks, but the current window offers a compelling case for investors to position in the heart of the AI revolution.