The AI supercycle: Can the Philippines join in on the fun?

The blistering advances in artificial intelligence (AI) and advanced computing is propelling an overhaul in how industries create the most value, and everyone wants a piece of the pie.    

As hyperscalers (those that operate large-scale data centers) and tech giants invest billions in developing agentic AI and superintelligence, they create spillover demand in adjacent industries.  

Given that the Philippines is unlikely to compete at the forefront of AI, the question is, “How can the country position itself for greater participation in the evolving AI ecosystem?”  

Stick to the stuff you know  

The country's semiconductor industry began in the 1970s, when multinationals saw an opportunity to set up assembly plants on our shores. It was simpler back then. But massive leaps in AI and advanced computing have increased the complexity and the nature of the challenge facing the industry today.  

For now, the AI boom is reinforcing the technological leadership of only a handful of countries involved in chip design and manufacturing. That same concentration also shifts pressure downstream.  

Growing demand for cutting-edge chips spills over into back-end processes that make them usable, particularly advanced packaging and testing, as well as power-related integrated circuits.

The Philippine government, along with the Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI), is already leading the charge through the Philippine Semiconductor and Electronics Industry roadmap. While it mostly focuses on increasing export volume, the roadmap also includes building an integrated circuit design sector, a step up the supply chain that may enable local creation of semiconductor intellectual property.  

Nonetheless, maintaining strength in the assembly, testing, and packaging stages also poses a challenge as AI complexity grows. Chiplets (specialized silicon wafers) and heterogeneous integration (which link multiple silicon pieces together) now require advanced packaging methods such as Chip-On-Wafer-On-Substrate (CoWos), a sophisticated 3D stacking method. At the same time, rising power requirements will make testing more intensive.  

Improving capabilities in these processes may be crucial to meeting the roadmap's goals.

Opportunities elsewhere  

Meanwhile, opportunities also exist beyond the semiconductor and electronics ecosystem. Data center infrastructure, in particular, remains a more AI-adjacent opportunity, given its importance to training large language models and the growing data storage demand from businesses. This could be especially advantageous if local corporations can raise the capital to build and lease these data centers to other companies.

One issue is energy capacity, which needs to be dealt with  before build-outs can begin. This will create opportunities throughout the supply chain, especially wtih renewable energy. In addition, nickel processing for batteries could expand along with the demand for data centers worldwide.

A key advantage of the Philippines is still a younger labor force, much more than the bright prospects for manufacturing and infrastructure. For sure, AI adoption may jeopardize certain industries such as the Business Process Outsourcing sector. Government support will be crucial in upskilling and reskilling workers to capture opportunities for higher-value and technology-driven work.

The future  

The clamor around AI will likely stick around, although concerns about superintelligence and malicious AI agents continue to be raised.  Nonetheless, the goal of agents replacing humans in the workforce seems far from reach, at least for now.  For the Philippines, the more immediate question is positioning.  

Along with the Semiconductor and Electronics Industry Roadmap, the Philippines’ entry into the US-led Pax Silica initiative could accelerate investment. However, it also raises concerns about the environmental implications of the initiatives and about the country remaining a supplier of labor and inputs on externally set terms.  

Nonetheless, while the Philippines has not agreed to grant US diplomatic immunity for the zone, future negotiations will have to include the value added locally and who ultimately benefits from the initiative.  

While the Philippines has earned its place in the chip supply chain through its expertise in assembly, testing, and packaging, the next chapter will not be decided by how AI itself will continue to develop. Instead, it will depend on how the country positions itself in the AI ecosystem by building skills, strengthening manufacturing capabilities, and addressing environmental and social sustainability risks.  

For investors, diversification across the supply chain is crucial. This covers the whole gamut of technologies and services surrounding AI, which includes testing and packaging, integrated chip design, mineral production and processing, data centers, and other AI-related services.

Such strategic diversification will allow for a more resilient portfolio. 

YOSHITAKA HIRAKAWA is a Research Officer of the Research and Market Strategy Department, Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. He holds a Bachelor’s degree in Management Engineering from Ateneo de Manila University. With a background in data-driven decision-making and quantitative methods, he aims to provide meaningful insights. Hungry for adventure, he constantly seeks new sights, sounds, and experiences, from cliff jumping to trying new cuisines.