PETALING JAYA: While the world continues to bask in an ever-evolving technology environment, buoyed by artificial intelligence (AI), which is becoming increasingly indispensable, analysts have their doubts about the prospects of tech counters on Bursa Malaysia.
Equity researchers generally concur that investors have already priced in earnings potential from local tech stocks, despite the fact that for the financial year ended December 2025 (FY25), most companies have not exactly reflected that confidence in their performance.
On the same note, industry leaders warn that Malaysia’s capacity to adopt green energy and AI technology will determine how much of the semiconductor and broader industry value chain the country can benefit from.
Kevin Khaw, assistant manager of research at iFast Capital, believes the recent rally in Malaysian tech counters has been overwhelmingly anticipatory rather than earnings-validated.
“While the Bursa Technology index has rebounded approximately 60% from its April 25, 2025, low by mid-December, it was still down 12% for the full FY25.
“Share prices have moved because investors began pricing in the tech narrative, not because these companies had already delivered improved results,” he told StarBiz.
Advocating prudent selection, he said the mid and small-cap tech segment is where investors could see a more attractive risk-reward profile than their large-cap counterparts, offering greater upside underpinned by improving earnings trajectories that have yet to be fully reflected in share prices.
“The market is paying for the AI story uniformly across the sector, but earnings delivery is highly uneven,” Khaw stressed.
IPP Global Wealth investment strategist Mohd Sedek Jantan echoed the “anticipation-driven rally” view, although he acknowledged that the broader environment remained supportive, with global semiconductor sales growing around 25% in 2025 and Malaysia’s electrical and electronics exports continuing to anchor external demand.
That said, he observed that corporate earnings have yet to fully reflect this strength. “Results for the final quarter of FY25 (4Q25) were decent but not strong, with only a small proportion of companies beating expectations, while most came in line or below forecasts.
“At the same time, margins are being squeezed by a stronger ringgit and rising costs, which are reducing export earnings. This stands in contrast to valuations, particularly in late 2025 and early 2026, where some names traded at 30 to 40 times forward earnings on expectations of a strong AI-driven cycle,” Mohd Sedek pointed out.
With Malaysia’s role in the semiconductor supply chain remaining largely in the backend, the benefits from AI are more gradual rather than immediate, he noted.
Valuations have run ahead, earnings are still catching up, and the market is now starting to adjust back to reality, he told StarBiz. At a global level, Khaw is still confident that the current semiconductor upcycle has legs, plausibly extending into the end of 2027 or even beyond.
He said the front-end capital expenditure (capex) cycle appears to be coming earlier rather than later, which is a positive signal for Malaysian companies with exposure to equipment and front-end services.
“However, and this is the critical nuance that many investors overlook, global growth is overwhelmingly driven by leading-edge logic and memory integrated circuits, particularly AI accelerators, HBM (high bandwidth memory) and advanced DRAM (dynamic random access memory),” Khaw added.
He noted that local outsourced semiconductor assembly and test (Osat) companies have minimal direct exposure to the AI supply chain.
Given these factors, Khaw believes Malaysian tech players are not yet at peak order flows for the global AI cycle, although expectations are increasing for their ability to participate.
“Hence, despite the anticipation of better revised earnings, the magnitude might not be as appealing as that of global semiconductor players.
“The risk is that the cycle extends globally through 2027, but the primary benefits accrue to front-end fabricators and advanced packaging players in Taiwan, Korea, and the United States, not to Malaysian Osat companies,” Khaw said.
According to Mohd Sedek, Malaysia is well positioned as a midstream and backend hub within global value chains, benefitting from both AI demand and ongoing supply chain diversification.
He also pointed out that continued investment in data centres and high-tech manufacturing provides a degree of medium-term visibility.
However, he stressed that the upcycle is a narrow, AI-led expansion, with growth concentrated in specific segments, while consumer, industrial, and parts of the electronics manufacturing services (EMS) space remain soft.
Mohd Sedek highlighted that earnings expectations for EMS players have been cut by as much as 30%, highlighting how uneven the recovery still is.
“At the same time, margins are not expanding in line with volumes, as currency strength and persistent cost pressures continue to limit operating leverage.
“However we see the cycle is still progressing, but this is best characterised as a mid-cycle expansion driven by AI, with relatively narrow leadership rather than a full, synchronised upturn,” he explained.
Solarvest Holdings Bhd
group chief executive Datuk Davis Chong told StarBiz that energy security is no longer a strategy, but an operational necessity.
He said Middle East tensions have accelerated demand across the group’s pipeline, especially in Malaysia’s growing AI, semiconductor and data centre sectors
“These industries require stable, predictable power with zero tolerance for disruption.
“We have seen that the conversation has shifted from whether to adopt renewable energy to how fast it can be deployed. We are seeing stronger urgency for integrated solutions – solar, battery energy storage system, and energy management – to ensure reliability and cost certainty,” he observed.
Chong sees this as a major economic opportunity for Malaysia because, as digital and semiconductor investments scale across the region, the country’s ability to provide reliable and competitive green energy will directly influence how much of that value chain it can capture.
He pointed out that key risks over the next 12 to 24 months include supply chain volatility, grid capacity constraints, and the speed of approvals to speed up transition.
Ooi Boon Sheng, CEO and founder of Xilnex Holdings Sdn Bhd, believes that businesses are still largely in a “wait-and-see” mode on the ground.
He said AI is moving faster than most enterprise buying cycles can keep up with, with the industry seeing significant exploratory interest and proof-of-concept (POC) engagements, but firm, committed orders remaining the exception rather than the rule.
“Businesses want to see proven return on investment or ROI before they commit, and that is fair. The optimism is real, but it is still front-loaded.
“That said, there is a clear uptick in activity – more POCs are getting greenlit, and AI-related training programmes are picking up noticeably. The groundwork is being laid; it’s just not converting into firm orders yet,” he told Starbiz.
Xilnex is 38% owned by listed logistics and digital solutions firm GDEX Bhd.
Ooi believes that the biggest risk at the moment is slow adoption leading to a quiet competitiveness gap.
“Companies that keep deferring AI and digital integration aren’t standing still; they are falling behind peers who are compounding small gains every quarter.
“By the time the hesitant ones feel the pressure, the gap may already be hard to close. That is the risk that does not make the headlines,” he says.
Mohd Sedek said earnings downgrades among analysts are already underway, with semiconductor names revised down by around 9% to 11% and EMS players by as much as 30%, suggesting expectations were too optimistic going into 2026.
At the same time, he said customer concentration remains a structural vulnerability, as many Malaysian tech companies rely on a small number of global clients.
Shifts in production strategy, including relocation and supply chain reconfiguration, are already translating into weaker orders and lower utilisation in parts of the sector.
He emphasised that macro backdrop is also becoming more complex, with geopolitical tensions, trade fragmentation and energy price volatility feeding into supply chains, costs and global demand, while a stronger ringgit – up more than 10% – is further compressing margins and limiting earnings translation.
“On top of that, the market is still over-extrapolating the AI cycle. Malaysia’s exposure is largely in the backend, so the earnings impact is more gradual and less pronounced, and if global semiconductor capex moderates, the downside is likely to come through with a lag but could be sharper than expected,” he warned.
Meanwhile, Khaw warned that AI capex circularity could be a potential landmine, as the investment cycle is characterised by circular capital flows between hyperscalers, AI startups and chip suppliers.
He said any shortfall in AI monetisation could ripple rapidly through the entire chain, and with roughly half of global semiconductor revenue expected to come from AI data-centre chips in 2026, the concentration risk is significant.
“Although Malaysian players have relatively less exposure to AI-direct proxy, the sentiment crush will similarly affect both global and local technology stocks should this happen,” he added.
