Tech

Technology Sector Outlook: AI-Led Semiconductor Boom Anchors Malaysia’s Supply Chain Relevance

AI-driven semiconductor demand is accelerating a global capex upcycle, reinforcing Malaysia’s tech supply chain position as investors selectively favour advanced nodes, packaging, and WFE-linked stocks.

Sector Overview: A Year of Earnings Realisation

The global semiconductor industry is entering a decisive earnings realisation phase, underpinned by relentless demand from artificial intelligence infrastructure. The market is projected to approach USD1 trillion in 2026, expanding roughly 25% year-on-year, with memory and logic segments leading growth.

Hyperscalers continue to scale AI compute, memory, and networking capacity at an aggressive pace, creating sustained demand visibility across the semiconductor value chain.

This growth is not speculative. Capacity commitments for advanced manufacturing nodes are already locked in. TSMC’s 2nm process and CoWoS advanced packaging lines are fully booked for 2026, signalling structural tightness in leading-edge capacity.

With TSMC maintaining dominance in advanced nodes, suppliers exposed to front-end manufacturing and advanced packaging are positioned to capture outsized earnings growth as utilisation rates remain elevated.While near-term headwinds persist, particularly from order digestion and China-related restrictions that could temporarily soften wafer fab equipment (WFE) demand, the medium-term outlook remains constructive.

The AI-driven capex upcycle is intact, favouring selective WFE and component suppliers with clear ramp visibility rather than broad-based exposure.

Malaysia’s Strategic Role in the Global Tech Supply Chain

Malaysia’s technology ecosystem stands to benefit from ongoing global supply chain realignment. Intel’s operational turnaround and consolidation of its Malaysia and Vietnam facilities into core assembly and testing hubs, following its exit from Costa Rica, represent a meaningful catalyst.

This move reinforces Malaysia’s role as a critical backend semiconductor manufacturing base, particularly in assembly, test, and increasingly, advanced packaging-related activities.The implication for local players is clear.

Companies embedded in advanced nodes, AI data centre infrastructure, and front-end equipment manufacturing stand to benefit from rising global semiconductor investment. However, selectivity remains key, as not all subsectors will enjoy equal earnings leverage amid currency volatility and uneven end-market recovery.

Investment Strategy: Maintaining an Overweight StanceAgainst this backdrop, an OVERWEIGHT call on the technology sector is maintained, with a clear preference for AI data centre, advanced packaging, and front-end beneficiaries. These segments offer the strongest structural growth drivers and earnings visibility as AI adoption broadens beyond initial hyperscaler deployment into enterprise and sovereign use cases.

Top sector picks remain Frontken, Mi Technovation (MITECH), and Wentel Engineering, reflecting differentiated exposure across advanced nodes capacity, packaging, and WFE-linked manufacturing.

Stock Changes Summary

Inari Amertron (HOLD; TP: RM2.00)

Inari’s outlook has softened following downward revisions to forex assumptions and reduced RF volume and margin expectations. FY26–28 earnings forecasts are trimmed by up to 9%, reflecting weaker discrete and mid-band RF market share in the CY26 handset cycle.

While a recovery is possible in FY27 as Customer B regains RF content share and Inari secures higher premium RF module assembly share, near-term earnings upside remains capped. Valuation at 27x FY27F earnings appears fair, justifying a continued HOLD stance.

ViTrox Corporation (BUY; TP: RM4.95)

ViTrox remains well positioned for a rerating despite minor earnings trims due to forex revisions. Its increasing exposure to high-growth segments such as HPC, AI server manufacturing, and advanced semiconductor packaging underpins a strong double-digit earnings growth trajectory.

The applied valuation premium reflects confidence in ViTrox’s ability to capitalise on the AI-driven semiconductor capex cycle.

Mi Technovation (BUY; TP: RM4.00)

MITECH continues to stand out for its steady earnings growth and strategic positioning within advanced packaging and OSAT supply chains. Higher unit shipment assumptions offset currency headwinds, supporting an unchanged target price.

Its exposure to WLCSP die sorters and Accurus’ role in supplying solder spheres for AI and advanced packaging applications provide clear structural growth drivers at a relatively undemanding valuation.

Wentel Engineering (BUY; TP: RM0.50)

Wentel remains a high-conviction small-cap pick. Improved operating leverage in its E&E segment, supported by NPIs transitioning into mass production and capacity expansion from a new facility, strengthens its earnings outlook.

Its growing exposure to front-end WFE customers and attractive valuation offer downside protection with rerating potential if execution remains on track.

Aurelius Technologies (BUY; TP: RM1.12)

A stronger ringgit presents a disproportionate margin challenge for EMS players due to thinner value-add profiles. While industrial EMS demand remains relatively resilient, earnings forecasts are trimmed to reflect pricing pressure and currency impact.

Despite this, Aurelius retains its BUY rating, supported by stable order flows and valuation anchored to historical averages.

The semiconductor sector’s AI-led expansion is reshaping earnings trajectories across the value chain. For Malaysia, structural relevance within global supply chains is strengthening, but returns will accrue unevenly.

Investors should remain selective, favouring companies with direct exposure to advanced nodes, AI infrastructure, and front-end semiconductor investment where earnings visibility is clearest

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