MBSB Research has maintained its neutral recommendation on Malaysia’s technology sector, citing strong semiconductor demand driven by artificial intelligence (AI) and data center infrastructure spending, but warned that a severe talent shortage, rising regional competition and potential AI regulation could limit earnings growth.
The research house said in report on last Thursday that global semiconductor sales (GSS) fundamentals remained solid, with the World Semiconductor Trade Statistics (WSTS) forecasting sales to rise 89.9 percent year on year to $1.51 trillion in 2026.
GSS reached a record $146.8 billion in July, up 135.1 percent from a year earlier and 6.4 percent from June, marking the 17th consecutive month of sequential growth. Growth was mainly driven by the Americas, Asia-Pacific and China.
Together with first-half sales of US$701.9 billion, global semiconductor sales reached $848.7 billion in the first seven months of 2026, equivalent to 56.2 percent of WSTS’ full-year forecast.
“Given the run-rate, we view that GSS is on track to meet the sales target for 2026. Moving forward, we view that demand continues to be underpinned by AI infrastructure and data center buildouts,” MBSB said.
However, the research house said the rapid expansion of the AI and data center industries had created a severe structural shortage of skilled talent, which could constrain Malaysian semiconductor companies’ ability to fulfil customer orders and limit earnings upside.
The shortage is particularly significant as Malaysia seeks to move beyond its traditional strength in outsourced semiconductor assembly and testing (OSAT) into higher-value activities such as integrated circuit (IC) design, advanced packaging and innovation-led manufacturing.
According to industry reports cited by MBSB, Malaysia needs about 50,000 skilled engineers to meet current demand, while local engineering graduates number only around 5,000 annually.
The National Semiconductor Strategy (NSS) aims to train 60,000 highly skilled engineers by 2030, but MBSB said the existing talent gap could continue to constrain the sector in the near term.
“With the talent shortage, we view that local semiconductor companies may not be able to fulfil all the orders given by the customers. This, in our view, would limit the potential earnings upside,” it said.
MBSB also highlighted growing competition from neighboring countries as they seek to strengthen their positions in the global semiconductor supply chain.
Geopolitical risks have accelerated supply-chain diversification beyond the traditional “China plus one” strategy, with some multinational corporations seeking secondary manufacturing and sourcing locations across Southeast Asia to improve supply-chain resilience.
Malaysia has developed a strong semiconductor ecosystem, particularly in OSAT, while efforts are under way to move further into IC design and advanced packaging.
However, neighboring economies are also increasing investments across the semiconductor value chain. MBSB identified Vietnam as a key potential competitor given its similar push to expand its semiconductor capabilities.
The research house said Malaysia would need to continue moving up the value chain to remain competitive as regional peers deepen their presence in the industry.
Beyond supply-side constraints, MBSB also flagged potential risks from the rapid pace of AI development.
It noted that several prominent figures in the AI industry, including Anthropic co-founder and chief executive officer Dario Amodei, OpenAI chief executive officer Sam Altman, SpaceX and xAI founder Elon Musk, and Google DeepMind chief executive Demis Hassabis, have raised concerns about the pace and safety of AI development.
MBSB said allowing more time for AI development would give companies and governments greater scope to assess and address potential security risks.
The research house said robust safety protocols and regulation had yet to fully keep pace with rapid AI development, while reports of AI agents behaving unexpectedly could prompt regulators to intervene.
“Should this take place, we are of the view that such development may limit the future earnings growth,” MBSB said.
Meanwhile, the global smartphone market remains challenging amid an ongoing memory shortage.
Global smartphone shipments contracted 6.7 percent year on year to 277.5 million units in the second quarter, according to the latest industry data cited by MBSB.
The memory crunch affected major Chinese smartphone brands, including Xiaomi, Oppo and Vivo, which recorded double-digit declines in shipments.
In contrast, Samsung and Apple increased their shipments and market shares during the quarter.
Samsung’s performance was supported by better supply availability and the delayed launch of its S26 series into the second quarter. Its position in the budget segment also benefited from limited offerings by Chinese competitors amid supply constraints.
Apple’s stronger shipments were supported by the iPhone 17 and relatively stable pricing, which MBSB said should have a positive impact on its supply chain.
For the fourth quarter, the launch of the iPhone 18 and iPhone Duo could provide further support to Apple’s shipments, although higher prices and supply constraints, particularly for the iPhone Duo, could limit the upside.
Looking ahead, WSTS expects global semiconductor sales to grow 26.6 percent in 2027, slowing from the 89.9 percent growth forecast for 2026 due to a higher base.
MBSB expects the semiconductor sector to continue expanding, supported by the AI and data center-driven supercycle, but sees the talent shortage as a persistent challenge.
It also warned that any slowdown in Malaysia’s technology advancement relative to neighboring countries could result in lost business opportunities, while further cases of AI agents behaving unexpectedly could lead regulators to intervene and slow the pace of AI development.
At the same time, the ongoing memory shortage is expected to continue weighing on the global smartphone market in 2027.
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