Analysts have maintained its overweight stance on the Malaysian technology sector, underpinned by the broadening semiconductor upcycle and sustained earnings momentum.
Hong Leong Investment Bank Research said in a note on Tuesday that as expected, second quarter earnings season for Malaysia’s tech sector was broadly positive (except for consumer electronics manufacturing services [EMS]), with respective managements’ commentary notably more confident and offering more details about their demand outlook and capacity expansion plans stretching into 2027.
“The global bellwethers put hard figures on the upcycle this quarter, which in our view, add more conviction to the sector’s medium-term earnings visibility,” said Hong Leong.
Nvidia guided to about 70 percent revenue growth in FY28 (January year-end) and framed it as supply-constrained rather than demand-limited.
Broadcom expects artificial intelligence (AI0 revenue to double in each of the next two years on strong custom chip demand from hyperscalers.
ASML is adding 30 percent lithography capacity for 2027 (fully booked), with a further 30 percent under evaluation for 2028 (substantial orderbook already in hand).
Likewise, TSMC and the three major memory makers have raised capex guidance and continue to expand aggressively.
“These commitments cascade through the entire supply chain, and are already visible in the forward outlook guided by Malaysian players – particularly those involved in (i) equipment and precision engineering; (ii) optical and photonics; (iii) power semiconductors; and (iv) HDD-related, among others,” said Hong Leong.
Underpinning this demand is the sheer scale of hyperscaler capital expenditure (capex), set to reach $800 billion this year before rising to more than $1.2 trillion in 2027, according to the research house.
“However, the central debate on AI capex has never been about the spending itself (the hyperscalers have both the cashflow and the balance sheet capacity to fund it), but about whether the returns are sufficient to justify it,
“Beside the cloud revenue growth disclosed by the hyperscalers, we will soon get a clearer read on the scale and economics of the AI frontier lab themselves,” said the research house.
While the AI capex cycle remains strong, Hong Leong opined that a potential US Federal Reserve rate hike would still weigh on near-term sentiment.
“That said, we do not see this triggering a material reduction in sector exposure – inflationary pressures may yet recede, and the opportunity cost of being underweight into a capex upcycle is high,” it noted.
Post second quarter results, RHB Investment Bank expects the technology sector bullish momentum to sustain into the second half on improving earnings trajectory, positive management guidance, and robust orderbooks and loadings amid the upcycle.
According to the research house, sector core profit after tax and minority interests (PATAMI) declined 25.8 percent year on year, dragged by weakness among EMS players, but grew 206 percent quarter on quarter as earnings began to reflect stronger loadings.
Excluding the EMS outliers, sector PATAMI would have rose 21.7 percent year on year, underscoring the broad-based recovery and semiconductor upcycle.
RHB said strong demand for wafer fabrication equipment (WFE) and automated test equipment (ATE) continues to benefit ATE and engineering support services players, with growth supported by better economies of scale and cost optimization.
“Outsourced semiconductor assembly and test (OSATs) remain firmly on an upward earnings trajectory, with stronger quarter on quarter performances driven by higher loadings and capex expansion linked to AI and data-center buildouts, alongside sustained growth in power-management and automotive integrated circuits (ICs),” said the research house.
It also said EMS players still see sequential improvements in revenue and utilization despite earnings remaining subdued as low utilization weighs on fixed-cost absorption but should regain operating leverage into FY27.
Sector key downside risks, however, included persistent high memory price softens electronic sales and consumer demand, material shortage, unfavorable foreign exchange movements, slowdown in AI-related capex spending, obsolescence of technology, and vintensifying geopolitical conflicts.
RHB highlighted that elevated memory prices could weigh on consumer electronics demand by increasing costs for smartphones, personal computers, automotive electronics, and other devices.
It is noted that IDC forecasts global personal computing device (PCD) market to decline 10.4% for the full year of 2026, with total shipments to reach 401.9 million units.
The downward revision is mainly due to a combination of component shortages and product cycle adjustments, exacerbated by the ongoing global memory shortage that is expected to constrain supply and lead to price increases with the impact is expected to carry into 2027.
Malaysia tech seen entering earnings-driven upcycle despite pullback risks – analysts