Kenanga IB said it is maintaining its NEUTRAL recommendation on the technology sector. In the recent forecast released by SEMI, the house said it noted that there is a slowdown in growth for the sale of assembly and packaging (A&P) equipment in 2025 before picking up pace in 2026. This could allude to another year of tepid growth for the outsourced semiconductor assembly and test (OSAT) companies which was similarly observed this year. This supported its NEUTRAL stance for the sector in 2025.

Premised on this, it anticipates the pace of recovery will be varied for companies across the different value chains. Thus, it views that companies well positioned in the AI-related supply chain should perform better as compared to its peers.

According to SEMI, the global sales of total semiconductor manufacturing equipment by original equipment manufacturers are forecasted to continue to grow in 2025 and 2026 by +7.7%yoy and +14.8%yoy respectively. This is a continuation of an expected growth of +6.5%yoy for 2024. SEMI commented that the improvement in outlook since July 2024 was mainly driven by stronger-than expected investment from China and AI-related sectors

Front-end segment taking the lead. Meanwhile, sales of wafer fab equipment will remain encouraging, growing by USD6.81b to breach the USD100b mark. This reflects the ongoing strong equipment investments in DRAM and high band width memory (HBM), driven by AI computing.

Kenanga notes that for 2025, the sale of A&P equipment is expected to grow by USD0.79b to USD5.73b, a slower pace of +16.0%yoy as compared to 2024 of +22.6%yoy. In comparison, the test equipment market was more optimistic in 2025 with sales expected to reach USD8.18b, a faster pace of USD1.04b or +14.6%yoy. All in all, the growth in the back-end segment will be supported by a gradual recovery in demand for the end markets namely mobile, automotive, and industrial as well as high-performance computing which form the backbone of AI. With the encouraging growth in the front-end segment, there should be better overall sector growth in 2026