PETALING JAYA: The technology sector remains on an “overweight” footing as strong artificial intelligence (AI)-driven demand, multi-year capacity expansion and continued policy support underpin the earnings outlook, according to Apex Research.
The research house said the growth story was broadening beyond semiconductor names, with AI demand increasingly extending into precision cleaning, outsourced semiconductor assembly and test radio frequency, custom AI/high-performance computing chip design and data centre electrical equipment.
The positive outlook is echoed by an analyst, who said the sector still has room to run, supported by the semiconductor upcycle, AI demand and improving order visibility.
“The sector is poised for further gains, supported by the sustained semiconductor upcycle, strong AI-driven demand and improving order visibility.
“However, the next leg of share price appreciation will depend increasingly on companies translating these favourable conditions into actual earnings growth,” he told StarBiz.
According to Apex Research, recent checks in Penang pointed to strong AI- driven demand extending into 2027 and 2028, with supply rather than demand emerging as the key constraint.
“AI-driven demand is strong and expected to remain supportive into 2027 to 2028, while supply has become the binding constraint,” it said.
Capacity is fully utilised at several companies, while longer input lead times, working-capital requirements and shortages of experienced engineers are becoming key challenges. With order books already secured, Apex Research said the focus had shifted towards “ramp timing, shipment execution and cost absorption”.
Of the 11 companies under its coverage with directly comparable quarters, two beat expectations, six were in line and three missed.
Apex Research also sees the AI capital expenditure cycle broadening across the value chain as multinational corporations expand local sourcing and manufacturing footprints in Malaysia.
The research house said the localisation push was creating opportunities for companies moving into higher-value activities.
Budget 2027, scheduled to be tabled on Oct 9, is expected to provide another layer of support.
However, Apex Research does not expect a single large allocation for the next phases of the National Semiconductor Strategy.
Instead, it expects “a continuation of targeted measures across funding, incentives, ecosystem development and talent”.
Apex Research favours companies with proven execution, visible order books and direct exposure to AI infrastructure and advanced packaging.
Its top picks are Vitrox Corp Bhd
(“buy”, target price or TP: RM11.12), EG Industries Bhd (“buy”, TP: RM2.93) and QES Group Bhd (“buy”, TP: 75 sen).
As it is, valuations have risen, with the KL Technology Index trading at 30.3 times forward earnings, above its five-year mean of 29.1 times.
