With the global tech earnings season underway, Hong Leong Investment Bank Research has expected continued upbeat artificial intelligence (AI) spending commentary to underpin a robust 2026 guidance for Malaysia technology sector.

The research house said in a note on Tuesday that the global tech earnings season is already in full swing, with most companies reporting over the next two weeks, and Taiwan Semiconductor Manufacturing Company (TSMC)’s recent guidance of raising capex to $52 billion to $56 billion for 2026 (+32 percent year on year) is already a strong signal.

“For Malaysia, the bar looks reasonable heading into the 4Q25 results season, as expectations have reset considerably following a weak 3Q25,

“That said, we still see scope for a few earnings misses as margin pressures persist, exacerbated by the strong ringgit,” said Hong Leong.

It also expects investor focus will likely center around management’s outlook for 2026 and margins guidance.

Meanwhile, the research house has recently conducted site visits to 12 Penang-based companies across multiple segments of the semiconductor supply chain.

“Overall sentiment across the meetings were positive, with management teams broadly expecting 2026 to be a better year relative to 2025,” it said.

Notably, it opined that US semiconductor tariffs did not feature prominently in discussions, suggesting that tariff-related concerns have eased.

This is likely influenced by the recent developments on China-related semiconductor tariffs (Section 301), which have now been deferred to June 2027, it added.

The research house has previously highlighted the China+1 diversification theme extensively in its 2026 outlook, with benefits accruing across various segments of the Malaysian technology sector, including outsourced semiconductor assembly and tests (OSATs), the global semiconductor capital equipment supply chain, and selective electronics manufacturing services (EMS) sub-segments such as optical transceivers.

“Feedback from our company discussions suggests that on-the-ground activity is more extensive, with capacity build-outs in other geographies also generating positive spillover effects for Malaysian players,

“Importantly, China+1 is evolving beyond geographic relocation alone to encompass broader supply-chain de-risking, including the substitution of China-sourced equipment, materials, and components,” it added.

Hong Leong also highlighted that global tech firm Apple is accelerating the diversification of its iPhone manufacturing footprint, targeting about 40 percent of production in India, up from about 20 percent currently.

Meanwhile, Foxconn’s India operations are not simply replicating the China supplier base but are actively onboarding new non-China vendors.

“This has already translated into tangible opportunities for Malaysian suppliers,” it said.

Over the medium to longer term, as India’s EMS and OSAT ecosystems continue to scale, the research house sees incremental addressable opportunities emerging, particularly for Malaysian equipment and solutions providers.

“More broadly, our discussions also indicate rising levels of engagement from global multinational corporations (MNCs), including Intel, AMD, Lam Research, Infineon, SanDisk, and Micron, across Penang and Kulim,

“Beyond underlying business growth, some of these MNCs have also reallocated capacity and committed additional resources to Malaysia, reinforcing Malaysia’s role as a strategic hub within their global production and research and development (R&D) networks,” said Hong Leong.

The research house also anticipated a robust pipeline of tech-related initial public offerings (IPOs), as the continued expansion of Malaysia’s semiconductor industry
supports the growth of Tier-2 suppliers and ancillary players across the supply chain.

On the recent appreciation of Malaysian Ringgit against the U.S. dollars, Hong Leong stressed that foreign exchange (forex) has not been a primary driver of Malaysia’s tech sector performance historically.

In a general sense, earnings for Malaysian tech and EMS companies could face headwinds from a stronger ringgit, as their sales are predominantly USD-denominated, though partly offset by natural hedge from USD-based costs (which typically account for 30 percent to 50 percent of the cost base).

“In our view, rather than behaving as a pure USD beneficiary, the Malaysian tech sector is actually more driven by: the global semiconductor cycles; and the impact of US Fed monetary policy on sentiment,” said the research house.

It noted that the sector upcycle in 2020 (during the Federal Reserve [Fed]’s easing) and downcycle in 2022 (Fed’s tightening) clearly illustrate these dynamics, overshadowing the effect of forex movement.

“Lastly, this is not to suggest that the impact from a stronger ringgit should be ignored entirely, as not all Malaysian companies are participating equally in the current global tech upcycle, unlike in 2020,

“We view the strong ringgit as likely to further widen the gap between outperformers and laggards (ability to offset margin pressure through robust revenue growth, scale, and operating leverage)…” it added.

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