RHB Investment Bank said the strength in logic and memory, driven by artificial intelligence (AI) demand, should broaden into other sub-sectors – reinforcing a firmer FY26 technology outlook for Malaysia.
The research house said in a note on last Friday that the improving sector revenue and earnings growth momentum should carry into the fourth quarter of 2025 despite seasonal softness, supported by the ongoing global semiconductor sector’s recovery.
“Encouragingly, this broader-based recovery is already evident in the improving orderbooks, revenue growth and earnings trends reported by many local technology names,” said the research house.
It is noted that the Semiconductor Industry Association (SIA) has revised its projection on global semiconductor sales growth to 26 percent year on year (from 8.5 percent year on year) in 2026, supported by a broader-based recovery.
This updated projection marks a significant upward revision from earlier estimates and underscores a broader-based recovery beyond the logic and memory segments that led the 2024-2025 rebound.
The growth of the market is being driven by continued robust demand for advanced logic integrated circuits (ICs), heightened memory pricing supported by AI infrastructure build-outs, and accelerating adoption in automotive, industrial and consumer electronics applications.
SEMI also revised its forecasts upward for semiconductor equipment sales to reach $145 billion (from $138 billion) in 2026 (+9 percent year on year), with growth across the front-end and backend segments.
Growth in the back-end equipment sub-segment is expected to continue, with test equipment sales growing 12 percent year on year in 2026 and 7.1 percent year on year in 2027.
Meanwhile, assembly and packaging sales are set to expand by 9.2 percent year on year in 2026 and 6.9 percent year on year in 2027.
The growth momentum is underpinned by the growing complexity of device architectures, the accelerated adoption of advanced and heterogeneous packaging, and stringent performance requirements for AI and high bandwidth memory (HBM) semiconductors.
The month on month global semiconductor sales data through late 2025 also highlights the strength of this trend, reaching record highs with a 29.8 percent year on year increase in November 2025 — and reinforcing expectations for the momentum to continue into 2026.
These revisions indicate that the semiconductor sector is transitioning from a recovery phase into a more broad-based upcycle across most product categories in 2026, supported by strong fundamentals across end markets, renewed capital investment and technology transitions like advanced nodes and heterogeneous integration.
RHB opined that engineering support players should maintain its strong growth momentum into FY26, on the back of rising orders from advanced technology enterprise (ATE) manufacturers, as chip volumes and complexity increase with advanced logic, memory (especially HBM/dynamic random access memory (DRAM)) and AI-oriented semiconductors.
The increasing sophistication of semiconductors (eg advanced nodes, silicon photonics, chiplets) are fueling demand for various ATE.
Front-loading of orders and capacity expansion as both the design house and outsourced semiconductor assembly and tests (OSATs) are increasing the capex ahead of a stronger demand recovery.
“Besides, with the ongoing relocation activities (related to the China Plus One initiatives) taking place, the overall addressable market size for our local players is definitely growing,” said the research house.
Meanwhile, the stronger capital expenditure (capex) and orders for ATE points to robust opportunities and sustained volumes for OSAT players, which are set to benefit from the broader industry upcycle, although the recovery may be uneven.
Despite the limited direct exposure for some players to the fastest-growth segments like AI servers and leading-edge logic fabrications, RHB highlighted a broader based upcycle and spill-over orders from the Tier-1 OSAT down should support utilization and orderbook visibility for most players.
According to the research house, electronics manufacturing services (EMS) providers have seen a recovery in orders, particularly towards the end of the calendar year, as inventory cycles and end-market demand (consumer, industrial, data centre [DC] infrastructure) improve.
However, it noted some key customers remain cautious, reflecting ongoing concerns about a potential global economic slowdown, cost pressures, and macroeconomic uncertainty.
“This conservative ordering behavior may temper a full recovery for EMS players, even amid the broader semiconductor sector’s strength,” said RHB.
Nonetheless, it noted regional supply chain shifts and global outsourcing trends are supporting EMS orderbooks — particularly for those with diversified portfolios and capacity readiness.
RHB also highlighted that software and services segments are exceptionally well positioned to benefit from several structural demand drivers: digitalization, cloud adoption on the back of increasing demand for cloud-centric software tools, cybersecurity and replacement cycles and enterprise tech spending.
In addition, government initiatives on digital adoption and cybersecurity objectives are the other catalyst.
While local supply chain players may not be direct beneficiaries of the AI-led logic or high-end memory boom, RHB said historical cycles indicate that spillover effects tend to materialize with a lag – particularly as semiconductor volumes normalize across mainstream nodes to the entire supply chain and broadening capital spending in general.
“Encouragingly, this broader-based recovery is already evident in the improving orderbooks, revenue growth and earnings trends reported by several local technology names,” it said.
As global semiconductor demand normalizes and participation widens across product categories, it expects this to translate into stronger earnings growth into 2026.
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