Is surging semiconductor demand enough to offset high sector inventories?

Tech sector weakness will persist until late 2026 due to inventory correction and sluggish demand.

The demand for artificial intelligence (AI)  is not enough to fuel the expansion of the tech manufacturing sector next year.

“Given massive oversupply and high inventories in non-AI sectors, AI-demand alone is not enough to offset falling volumes and margins. These trends are likely to persist until the second half of 2026,” Maybank said in its latest Singapore Strategy report.

The Ministry of Trade and Industry expects the local economy to expand by 4%, driven by stronger global demand and robust exports of AI-related semiconductors.

Lennon Tan, president of the Singapore Manufacturing Federation, even noted that the semiconductor equipment is currently supplying about 20% of the global demand.

Despite AI leading the expansion of the semiconductor sector, Maybank said the weakness from other key sectors like automotive, consumer electronics and industrial markets has created an oversupply and inventory correction.

“The overall semiconductor demand remains sluggish, resulting in high inventory levels for most of the key semiconductor players. Numbers across the Singapore-listed players were also not encouraging and were rather tepid, with earnings missing consensus multiple times for UMS and AEM,” the report read.

The trade ministry said semiconductor equipment makers may face near-term challenges due to uncertainty over US tariffs. The electronics cluster will benefit from AI-related semiconductors, whilst transport engineering growth is supported by aerospace and marine sectors.

A few key players like AMAT, ASML and LAM Research have also guided for weaker demand in the first half of next year, driven by macroeconomic and geopolitical uncertainties, as well as a projected decline in sales to China.

Demand is only expected to pick up by the second half, driven by increasing demand for AI-related chip production.

“As a result, we also expect weakness in some of our SG tech names like Frencken and UMS in 1H26 and a pick up in 2H26. Overall, 2026 should still be a better year than 2025,” Maybank said.