RHB Research has maintained an Overweight call on Malaysia’s technology sector, expecting the KL Technology Index (KLTEC) to continue outperforming as earnings growth accelerates from the second quarter of 2026, supported by robust orderbooks, improving factory utilisation and a broader industry upcycle.
The research house named Malaysian Pacific Industries (MPI), Pentamaster, CTOS Digital and JHM Consolidation as its top picks, saying greater upside could be found among laggards and second-tier technology companies where earnings recovery and operational improvements have yet to be fully reflected in valuations.
RHB said the sector is currently trading at about 27 times forward price-to-earnings (P/E), around one standard deviation above its five-year mean, against forecast earnings growth of more than 30% for FY2026-FY2027.
“Ground checks” across the technology supply chain have reinforced RHB’s high-conviction view that the industry is firmly in an upcycle, which could extend into FY2027.
The research house said factory loadings remain robust, orderbooks are expanding and customer forecasts are increasingly positive amid accelerating demand for artificial intelligence (AI) and a recovery in other technology segments.
It expects most technology companies to post stronger year-on-year and quarter-on-quarter earnings, supported by healthy order backlogs, high utilisation rates, steady project execution and faster billings.
The positive earnings trajectory is expected to continue into the second half of 2026, helped by the seasonal ramp-up in activity and a favourable foreign exchange tailwind, RHB said.
AI demand to sustain semiconductor upcycle
RHB also highlighted the increasingly structural nature of AI-related demand.
It cited the Semiconductor Industry Association’s (SIA) forecast for the global semiconductor market to reach US$1.5 trillion in 2026, representing an 89.9% increase, driven by memory, logic, micro and analogue integrated circuits.
The market is expected to expand by another 27% in 2027 as AI deployment continues.
Meanwhile, SEMI expects semiconductor equipment spending to rise 10% year-on-year to US$138 billion in 2026, driven by aggressive capacity expansion in leading-edge logic, dynamic random-access memory (DRAM) and advanced packaging.
Malaysia is also benefiting from the global technology upcycle, with the country’s electrical and electronics (E&E) exports surging 43% year-on-year to RM468 billion in the first half of 2026.
RHB noted that E&E exports accounted for more than half of Malaysia’s total export growth during the period.
Rising capital expenditure expectations among major global technology companies, including the so-called Magnificent Seven, further support expectations of a prolonged AI infrastructure buildout and semiconductor upcycle, it added.
Advanced technologies creating new opportunities
The research house said rapid adoption of generative AI and hyperscale data centres is creating structural demand for advanced packaging, power semiconductors and high-speed networking.
As computing intensity and rack power densities rise, the industry is facing increasingly critical power, thermal management and bandwidth constraints.
This is accelerating the adoption of wide-bandgap materials such as silicon carbide (SiC) and gallium nitride (GaN) to improve power-conversion efficiency.
At the same time, advanced 2.5D and 3D packaging is gaining traction as chipmakers seek to integrate chiplets, while high-bandwidth memory (HBM) is becoming increasingly important for higher computing density.
The shift towards high-speed optical technologies, including silicon photonics and co-packaged optics (CPO), is also gathering pace as data-centre operators seek to reduce latency and improve energy efficiency.
Risks remain
Despite the positive outlook, RHB cautioned that elevated memory prices could weigh on consumer electronics demand by increasing costs for smartphones, personal computers and automotive electronics.
This could potentially lead to downward revisions in global device shipment forecasts.
Other risks include geopolitical tensions, foreign exchange volatility, cost-driven margin pressure and intermittent order delays arising from component shortages.
Potential interest rate hikes by the US Federal Reserve could also put pressure on technology sector valuations, RHB said.
Overall, however, RHB remains positive on the sector, with strong orderbooks, improving earnings momentum and sustained AI infrastructure investment expected to support the Malaysian technology industry’s upcycle through 2026 and potentially into 2027.
