PETALING JAYA: While the artificial intelligence (AI) and data centre (DC) boom has partly fuelled Malaysia’s technology sector, analysts warn that the next leg of the rally will depend increasingly on whether companies can deliver earnings upgrades to justify elevated valuations.
The Bursa Malaysia Technology Index climbed 49% to 76.34 points from its year-to-date low of 50.51 points on March 31, with second-quarter (2Q26) results from technology companies lending further support to the rally. (See table)
Analysts said AI and DC investment had been a major catalyst, but not the sole driver of Malaysian technology companies’ strong 2Q26 results.
Mercury Securities Research said the earnings runway from AI could remain substantial as long as Nvidia Corp and other global technology leaders continue innovating, while hyperscalers sustain their AI capital expenditure (capex).
However, with the Bursa Malaysia Technology Index having rallied strongly this year, the research house said a substantial amount of optimism was already reflected in share prices.
Mercury Securities said the next leg of the rally would need to be earnings-driven, with companies having to continue beating expectations and prompting analysts to revise their forecasts higher.
“AI demand can continue driving earnings, but share-price upside will become increasingly selective rather than simply rising with the theme,” the research firm noted in a reply to StarBiz.
Tradeview Capital Sdn Bhd chief investment officer Nixon Wong said with AI providing a structural tailwind to the semiconductor cycle, the key question now was how much of the expected growth had already been priced into technology stocks.
He said industry fundamentals remained favourable, with Taiwan Semiconductor Manufacturing Co Ltd’s results and capacity expansion plans showing that AI semiconductor demand is still exceptionally strong.
“Malaysian companies positioned downstream of this capex – such as inspection equipment, outsourced semiconductor assembly and testing, power semiconductors, and high-bandwidth memory or HBM-related equipment and materials – can therefore continue benefiting into 2027,” Wong said.
He added that Malaysian technology sector earnings are expected to grow by more than 30% across financial years 2026 and 2027, supported by stronger utilisation, order books and the semiconductor upcycle. But, a substantial amount is now reflected in prices. Valuation is no longer low, with the sector trading either around its historical five-year average price-to-earnings ratio or above one standard deviation.
“Hence, we need to see actual earnings upgrades to push share prices higher.”
Wong said the magnitude of the benefit from AI demand varied across companies, with some having more direct exposure than others.
For Vitrox Corp Bhd
, he said the exposure was more direct, alongside demand from the automotive and consumer electronics sectors, as well as supply chain relocations.
“Its inspection equipment is increasingly used in advanced packaging, AI accelerators and HBM, where inspection intensity is much higher than for conventional chips,” Wong said.
Similarly, Mercury Securities said the direct benefit from AI is clearest for Vitrox, where demand for AI accelerators, HBM and advanced packaging is increasing the need for sophisticated inspection equipment.
Meanwhile for MI Technovation Bhd and Malaysian Pacific Industries Bhd (MPI), Mercury Securities said AI was an important contributor to the semiconductor upcycle, but their earnings were also supported by broader demand recovery, product mix, average selling prices (ASPs) and operating leverage.
“Therefore, rather than attributing a specific percentage to AI, we view AI as the structural demand engine that is amplifying a broader semiconductor recovery,” the research house said.
Wong said MI Technovation benefited from the AI and high-performance computing (HPC) memory ecosystem, but its strong profit growth also reflected product mix and operating leverage.
“The strongest contributor was its semicon materials business and management cited continued growth in mobility and wearables, HPC and memory, together with a gradual automotive and renewable- energy recovery. So, AI is important, but its story is broader.”
For MPI, Wong said its exposure to AI was relatively small, although management had been shifting towards AI servers and sensors.
He said AI-related products represented approximately 13% of revenue earlier in 2026, with the company targeting the figure to reach 20%.
Looking ahead, analysts said the biggest risks facing the technology sector in the near term include weaker AI capex growth and geopolitical tensions to elevated valuations.
Mercury Securities said the main risks were geopolitics, a slowdown in AI capex and the possibility of innovation reaching a point of diminishing returns.
“Malaysia’s technology sector is tied closely to the global semiconductor cycle, so export restrictions, US-China tensions or weaker hyperscaler spending could quickly affect order flows,” it noted.
The research house added that valuation was another risk as expectations had risen following the strong rally, leaving the sector vulnerable to a sharper de-rating in the event of earnings disappointment.
Tradeview Capital’s Wong said the bigger risk was a change in AI capex expectations, rather than an outright collapse in AI demand.
“Global valuations implicitly assume hyperscalers will keep spending extremely aggressively. So, a transition from explosive AI capex growth to barely strong growth could compress semiconductor PE multiples,” he pointed out.
Currency was another risk, Wong said, as most technology companies derived revenue in US dollars and a weaker greenback could weigh on both revenue and margins.
He added that US-China trade restrictions and supply chain policies remained a significant tail risk.
“Malaysia is increasingly important in semiconductor packaging, testing and DC investment, but that prominence also puts it under greater scrutiny regarding exports of advanced AI chips and potential circumvention of US controls,” he said.
