Tariff Risks vs AI Boom: Southeast Asia's Semiconductor Sector at a Crossroads
Date: February 22, 2026
The semiconductor industry in Southeast Asia is experiencing a turbulent period as investors navigate an increasingly complex landscape marked by ambitious AI growth projections on one hand, and mounting tariff pressures on the other. The divergent performance of semiconductor stocks across the region reflects the nuanced nature of this challenge.
US Tariffs Cast a Shadow
Since US President Donald Trump announced a 25 per cent tariff on specific high-performance AI chips including the Nvidia H200 and AMD MI325X in mid-January, the semiconductor market has been in a state of flux. The tariffs, imposed under Section 232 of the Trade Expansion Act, target high-end semiconductors and the devices containing them as part of a strategic effort to reduce American reliance on foreign supply chains.
In Singapore, semiconductor stocks have shown mixed reactions. Shares of AEM, Frencken, and UMS have slipped since the announcement, while Venture remained relatively flat. The selloff reflects investor concerns about the potential impact on the complex global semiconductor supply chain that flows through Southeast Asia.
Singapore's Minimal Impact Assessment
Despite the anxiety surrounding tariffs, Singapore's Ministry of Trade and Industry has offered some reassurance. The ministry stated that the tariffs would have a "minimal impact" on Singapore, noting that the levies apply only to a "narrow category of semiconductors not currently manufactured in Singapore." This preliminary assessment, developed in consultation with the local semiconductor industry, provides some comfort to investors worried about the sector's exposure.
However, analysts caution that there may be an overhang in the medium term. The White House has indicated that in the "near future," broader tariffs on imports of semiconductors and their derivative products could be imposed, creating continued uncertainty for the industry.
Regional Stock Performance Diverges
Beyond Singapore, the picture is equally mixed. While some stocks have declined, others have shown resilience or even growth. Delta Electronics in Thailand—a key data centre component supplier—saw its shares rise about 10 per cent as demand for High Bandwidth Memory (HBM) and data centre infrastructure remained robust.
In Malaysia, Inari Amertron experienced a downturn after major customer Broadcom was hit by a Chinese regulatory directive to stop using foreign software solutions. Meanwhile, Innotek saw its shares spike after clinching a deal to supply equipment supporting Nvidia's AI efforts.
The "TACO Trade" and Analyst Optimism
The divergence in stock performance suggests that investors are increasingly prioritizing specific customer exposure over general tariff fears. Some market participants are holding onto the so-called "TACO" trade—an acronym for "Trump Always Chickens Out"—betting that the tariff threats will eventually de-escalate.
Despite the short-term volatility, analysts remain broadly positive about the sector's prospects. Macquarie Equity Research recently initiated coverage on Frencken with an "outperform" rating and a target price of S$1.76, expecting a second-half 2026 pickup in semiconductor orders. The firm noted that ASML, Frencken's key customer which holds a near-monopoly on advanced lithography machines used to produce high-end AI chips, could be increasing orders from 47 to 54 units.
Looking Ahead
For Southeast Asia's semiconductor sector, the path forward lies in balancing the tremendous opportunities presented by the AI boom against the regulatory and trade uncertainties. Singapore's position as a minimal-impact zone for the current round of tariffs provides some breathing room, but the industry must remain vigilant.
As the region continues to play a critical role in the global semiconductor supply chain, the ability to navigate these crosscurrents will determine whether Southeast Asia can fully capitalize on the AI revolution or find itself left behind.
Related Resources
For more insights into Singapore's technology ecosystem and AI developments, explore Top 5 Singapore Tech Startups for curated rankings of the most innovative companies in the Lion City. Additionally, stay updated on the latest Singapore AI news at AI Dominance SG.
Source
Business Times: Tariff risks vs AI boom: S-E Asia's semiconductor stocks diverge but upside ahead