Malaysia’s technology sector is entering an earnings-driven upcycle as improving order books, rising book-to-bill ratios and sustained global spending on artificial intelligence infrastructure support growth prospects, analysts said, although they cautioned that the sector could face increased volatility after a strong rally this year.

Hong Leong Investment Bank said in a note on Monday that it believes the first quarter results season marked the early stages of a broader upcycle for the Malaysia tech sector, with leading indicators (higher book-to-bill, growing orderbook visibility, positive pricing trends) inflecting well ahead of reported earnings.

“Overall, the first quarter results season also validated our view (link) that the strong ringgit is more noise than signal for the sector, taking a backseat to the ongoing upcycle — where names with robust revenue growth, scale, and operating leverage comfortably absorbed the forex headwind compared to the laggards,” said the research house.

According to Hong Leong, the precision engineering players are benefitting from a strong wafer fabrication equipment (WFE) upcycle, which is further underpinned by Lam Research’s additional capacity expansion and the growing
localization of global semicap equipment supply chains into Malaysia.

Meanwhile, outsourced semiconductor assembly and test (OSAT) outlook have also been supported by accelerating China+1 diversification trends, a recovery in analog semi, and rising power semi content in AI data center buildouts, said Hong Leong.

“The four structural themes we outlined at the start of the year are playing out as anticipated: OSATs benefitting from accelerating China+1 relocation; deeper localization of global semicap players supporting the domestic supply chain; rising optical and power semi content driven by AI DC buildouts; and Intel’s resurgence,” it concluded.

Kenanga Research also remains constructive on the medium-to-longer term outlook for the technology sector, supported by continued global fab expansion and resilient AI infrastructure spending.

It is noted that Semiconductor Equipment and Materials International (SEMI) expects global installed capacity to expand by 4.7 percent to 5 percent in 2026, while front-end equipment spending is forecast to reach a record $133 billion, up 18 percent year on year.

This indicating that the industry’s fab expansion cycle is shifting from construction starts in 2025 towards equipment installation, capacity ramp-up and production readiness in 2026.

Meanwhile, the research house noted Magnificent 7 capital expenditure (capex) commitments remain on an upward trend, with disclosed 2026 capex guidance now pointing to roughly $720 billion to $750 billion (about 35 percent higher than that guided during the fourth quarter of 2025), reinforcing demand visibility for semiconductor equipment, advanced packaging, high-performance computing (HPC), data center infrastructure, ultra high purity (UHP)/gas systems and other AI-related supply-chain beneficiaries.

“The sector’s medium-to-longer term drivers remain supportive, underpinned by AI-related capex, ongoing fab expansion, advanced packaging demand and supply-chain localization,” it added.

According to the research house, the Malaysia’s tech sector earnings were broadly mixed in the recently concluded first quarter reporting season, with foreign exchange headwinds and selected cost inflation following the US-Iran conflict emerging as key swing factors.

Front-end players continued to see sustained momentum in project enquiries, supported by ongoing global semiconductor fab investments.

OSAT players delivered relatively stable results and outlook, as they continued to align production strategies with key customers’ product roadmaps.

Meanwhile, automated test equipment (ATE) providers remained well positioned to ride the current upcycle, with management teams guiding for stronger automation demand in the coming quarters.

In contrast, the electronics manufacturing services (EMS) segment continued to face near-term pressure from weak end-demand and margin compression caused by unfavorable foreign exchange movements.

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