TSMC’s American depositary receipts traded at an average 13.7% premium to its Taipei-listed shares in May.

Local investors are driving the premium on Taiwan Semiconductor Manufacturing Co.’s US-listed shares to a two-year low as they pile into the chipmaker’s stock in Taipei on bets the AI boom has further to run. TSMC’s American depositary receipts traded at an average 13.7% premium to its Taipei-listed shares in May, data compiled by Bloomberg show, down from 26% in December and marking the fifth straight month of decline. This reverses a trend that saw the chipmaker trade at a significantly higher valuation among international investors during the early stages of a global AI rally. The shift has been driven largely by a dramatic run-up in Taiwan-listed shares, which have soared more than 50% this year and outpaced the ADRs’ less than 40% advance. Regulatory changes allowing local equity funds to increase exposure to domestic stocks have added fuel to the rally, while individual investors have poured into AI-related names, spurring a retail frenzy. “Taiwan local market sentiment has turned extremely positive about the AI cycle, much more so than the US over the last few months,” said Vincent Fernando, executive director at Zero One Investment Research. “There are far less concerns about an AI bubble in Taiwan than in the US.” The chipmaker’s ADRs have typically traded at a premium to its Taipei-listed equities, due to a mix of easier access for foreign investors and inclusion in popular indexes. They are also fungible, unlike the Taiwan shares, which need special regulatory approval to be converted into the US equivalent. The erosion of the ADR premium suggests local investors play a bigger role in driving TSMC’s valuation after years of foreign demand being the dominant force. The stock’s surge has been so powerful that it pushed Taiwan into the ranks of the world’s five largest stock markets.

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