Taiwan’s aerospace and defense ambition enters a new era as AI, drones and strategic supply chains converge, experts say

Taiwan’s space and defense industries are moving beyond traditional military procurement, as AI, autonomous drones, semiconductors and emerging space technologies converge to form a strategic industrial ecosystem.

A strategic industry, not just an investment theme

For investors, the transformation is already becoming visible.

Jervis Li (李政剛), an ETF fund manager at Yuanta Securities Investment Trust, said at an Aug. 10 event organized by Business Today that defense-related stocks have shown considerable resilience and, based on the sector's risk-return profile, could represent a compelling investment.

He said the sector has performed strongly alongside technology stocks and gold, while historically gaining in bull markets yet proving relatively defensive when markets turn bearish.

That investment thesis rests on a broader geopolitical shift.

Henry Wu (吳嘉隆), a Columbia-trained economist, pointed to Warren Buffett’s Berkshire Hathaway as an example, noting that the conglomerate’s major investments in Japan have centered on the country’s five leading trading houses, whose businesses have exposure to defense, aerospace and other strategically important industries.

At the same Business Today event, Wu described the current defense and aerospace trend as the product of “geopolitical escalation plus technological progress”.

Drones move to center stage

The most conspicuous example is the rise of unmanned systems. Wu pointed to recent conflicts in Ukraine and Iran as evidence that drones, increasingly integrated with AI, are altering battlefield calculations.

Wu added that Taiwan has an important industrial advantage. Its capabilities extend from AI chips to advanced materials such as carbon fiber, while the United States possesses strengths in software.

Wu said there is an opportunity for a deeper division of labor, potentially allowing drone, unmanned surface vessel and unmanned submarine supply chains to take root in Taiwan.

He said the fact that the US and the West trust Taiwan is itself an extremely valuable asset.

He also argued that Taiwan’s drone industry is oriented primarily toward exports rather than domestic demand alone, and is therefore less affected by the size of Taiwan's annual defense budget.

Yet former Economic Affairs Minister Wang Mei-hua (王美花) offered a different assessment.

She told TCN in late July that Taiwan’s drone development is fundamentally driven by national security considerations rather than purely commercial logic, and therefore should not be managed solely through the Ministry of Economic Affairs. If government budgets are frozen and public orders disappear, she warned, manufacturers could face severe difficulties.

From defense drones to civilian infrastructure

Chen Yen-sen (陳彥升), chairman of Taiwan-based aerospace manufacturer TiSPACE and a former NASA scientist, said that Taiwan should concentrate on “Edge AI Drone Systems,” a field in which autonomous computing is integrated directly into unmanned platforms.

At an Aug. 6 event held by the Institute for National Policy Research, Chen cited civilian uses including urban mapping and planning, traffic management, power line inspections and maintenance, and surveillance of large solar and offshore wind installations.

Chen added that drones can detect chemical signatures and pollution near industrial facilities, supporting environmental monitoring. By contrast, he stated that package delivery is less suited to Taiwan because of its dense residential environment and lack of private yards.

Chen said Australia, with its vast distances and sparse population, is better suited to mining-site management applications. He added that TiSPACE already operates in the country.

AI and the new battlefield

Tony Hu, a former Pentagon official who also served at the American Institute in Taiwan (AIT), the de facto US embassy in Taipei, said at the Aug. 10 Business Today event that the decisive advantage may ultimately lie not in the number of platforms, but in the intelligence embedded within them.

He said the US military’s experience shows that human-machine collaboration dates back years, if not decades, and has evolved toward increasingly autonomous systems. New-generation drones can take off and land autonomously, recognize targets and assess whether they merit engagement, reducing human intervention.

AI is also compressing operational planning, Hu said. Tasks that once took five or six hours and required substantial human input may now be completed in only a few minutes by AI systems, allowing commanders to seize the initiative and maintain a more comprehensive view of the battlefield.

Hu noted that this could have major implications for Taiwan. The island is unlikely ever to match China in the sheer number of aircraft, ships or armored vehicles, he said. He argued that AI-assisted decision-making could provide a qualitative advantage, enabling Taiwan to react faster and potentially force a larger adversary into a reactive posture.

Hu also said Taiwan’s semiconductor industry is strategically important because chips manufactured on the island are incorporated into numerous US military systems.

His broader point was that Taiwan occupies a pivotal position at the intersection of advanced computing and national security.

The aerospace and defense nexus

The boundary between Taiwan’s space and defense sectors is becoming increasingly porous.

Chen pointed to the sophistication required for unmanned aircraft to land on aircraft carriers — technology already demonstrated by the United States — as an indication of autonomous systems’ progress.

He added that Taiwan has accumulated relevant capabilities in drone technologies through organizations such as AIDC and the National Chung-Shan Institute of Science and Technology, Taiwan’s defense technology R&D center that has worked on systems including the Ruiyan II.

Wu identified three adjacent fields worth watching: power, cybersecurity and high-speed transmission.

He noted that AI servers and data centers require enormous amounts of electricity and cooling, while AI-enabled cyberattacks are making cybersecurity increasingly important. Low-Earth-orbit satellites and optical communications will also become more valuable as the volume of AI-generated information grows.

A long-lasting industrial cycle

The experts differ on how Taiwan should finance and govern the sector, but agree on one point: this is unlikely to be a short-lived investment fad.

Asked whether the trend could endure, Hu compared the AI revolution with earlier industrial and digital revolutions, both of which unfolded over long periods, and argued that defense applications of AI are only beginning to emerge. He said more innovations and applications would follow.

Asked whether past US reluctance to support Taiwan's independent defense research and development capabilities remains an obstacle, Hu said times have changed.

Wu called the coming period potentially a “golden 20 years” for defense-related industries, citing Japan’s renewed military posture and China’s economic difficulties.

For Taiwan, the opportunity is larger than drones exports alone. The emerging aerospace defense ecosystem encompasses semiconductors, AI, autonomy, materials, energy, cybersecurity, communications and satellite technologies.

Its trajectory will depend on procurement, exports and geopolitics — but if Taiwan can convert technological depth into integrated, internationally trusted capabilities, space and defense may become not only instruments of national security but also pillars of the island’s industrial capacity.