AI sell-off hits Singapore tech stocks, but analysts see correction rather than end of boom

SINGAPORE: Singapore-listed technology stocks tumbled at opening on Friday (Nov 6) before pulling back some losses, as fears of tighter AI regulation under a Democratic-led US Congress triggered a global sell-off.Semiconductor equipment supplier UMS Integration plunged 15.2 per cent at the open, then rebounded about 12 per cent to close at S$1.69. Local semiconductor solutions company AEM Holdings fell as much as 13 per cent in early trade, then recovered about 9 per cent to close at S$6.20.Other tech and AI-related firms saw their stocks dive at open: Frencken Group, which serves semiconductor customers, sank over 8 per cent, while electronics manufacturing service provider Venture Corporation dipped 1.5 per cent. At closing, Frencken’s was down about 6 per cent and Venture 3 per cent from the previous close.The global AI rout left Asian markets in the red, with Singapore’s Straits Times Index down by over 2 per cent.Analysts said the sell-off reflected a correction in AI valuations rather than evidence that the AI investment cycle was over. The intraday recovery also showed that appetite for technology stocks remained, even as the market remains volatile.“The local tech stocks are indeed being pulled along by the regional AI unwind, with the market reaction being far from uniform,” said OCBC’s head of wealth advisory Chez Anbu, adding that stocks that have delivered the strongest gains this year are likely to be most at risk of further pullbacks.“Until there is greater clarity on the regulatory and demand environment for AI, companies that have been among the biggest beneficiaries of the investment cycle may continue to experience heightened volatility.”A VOLATILE MARKETThe sell-off followed the US mid-term elections, which sparked fears that an incoming Democratic Congress would tighten AI regulations and curb the industry's growth.Mr Anbu said any eventual rules might differ in scope, implementation and timing from what investors now expect. They would also need the signature of President Donald Trump, who has the power of veto, he added.“In the meantime, volatility will likely stay high until the US picture clears, and nobody can reliably call a near-term rebound.”Ms Charu Chanana, chief investment strategist at Saxo, said the initial fall in Singapore tech stocks was largely a spillover from the global rout, but the intraday reversal showed how volatile and sentiment-driven the market had become.“This suggests that buyers are stepping in after the sharp correction, even as global technology sentiment remains fragile,” she said.Ms Chanana said volatility would persist as markets distinguish between companies with strong earnings visibility and those whose growth expectations depend on “uninterrupted AI infrastructure spending”. “The biggest downside risk would be if the market's concerns about AI investment begin translating into actual reductions in orders, capital expenditure or earnings guidance,” she said.TECH SECTOR’S EXPOSURE Mr Anbu said Singapore’s technology sector has “significant but concentrated” exposure to the global AI investment cycle, primarily through the semiconductor and electronics supply chain.AEM, which provides advanced semiconductor testing solutions, and UMS, which manufactures precision components for semiconductor equipment, are most directly linked to the cycle, he said.Technology solutions company Frencken and nanotechnology firm Nanofilm have meaningful exposure, while Venture's broader base across multiple electronics and industrial segments gives it more diversification, said Mr Anbu.Still, substantial investments, including Micron’s US$24 billion plan and Applied Materials’ expansion of its Singapore operations, support the longer-term outlook.“These investments give the sector a longer-term cushion and provide some resilience against shorter-term fluctuations in the AI investment cycle,” he said.Mr Anbu added that the technology sector’s longer-term outlook remains favourable, as global spending on data centres is forecast to grow by roughly 27 per cent annually through 2029.Singapore is well placed to benefit given its established digital infrastructure, skilled workforce and role as a regional technology hub, he said, although he noted that increasing competition from neighbouring markets could temper its advantage over time.Ms Chanana said it is important to view AI in three phases.“The first phase was about chips, the second about building infrastructure and data centres, and the third will be about adoption, when businesses begin generating measurable productivity gains and revenues from AI,” she said.Singapore is moving from the infrastructure phase towards adoption, and that transition is likely to be uneven, she added.Because the country’s semiconductor companies are more directly exposed to the first two phases, they are vulnerable if global technology companies slow infrastructure spending or equipment makers see orders deferred, she said.INVESTOR OUTLOOKAnalysts cautioned investors against panic selling or rushing to “buy the dip”. They advised first checking how much AI and semiconductor exposure they already hold.Mr Anbu said investors with a longer horizon and spare cash may also look at financially strong companies with strong earnings, and then build their positions gradually.“Over the longer term, spreading one’s purchases over time is ultimately more prudent than trying to time the market’s lowest point,” he said.He also urged investors to watch the capital expenditure plans of hyperscalers such as Amazon, Microsoft and Google, whose spending decisions have significant implications for demand across the technology supply chain.Ms Chanana said investors need to remember how far some of these stocks had rallied before the correction.A stock falling 20 per cent does not automatically make it cheap if its valuation had already priced in several years of strong growth, she noted.“The opportunity lies in companies that can sustain earnings growth even if AI infrastructure spending moderates,” she said.Ms Chanana added that diversification is “especially important” now.“I would focus on balance-sheet strength, customer diversification, order visibility and valuations relative to realistic earnings expectations.”