This article first appeared in The Edge Malaysia Weekly on September 9, 2024 - September 15, 2024

Technology stocks on the local bourse took a beating last week, reflecting the heavy selling pressure on Wall Street, especially the record selling in chipmaker Nvidia’s shares, as optimism about the artificial intelligence play faded while concerns over global growth loomed.

As a result, the year-to-date gains of the Bursa Malaysia Technology Index were wiped out. At last Friday’s close, the index showed a 5.8% decline, which was also attributable to the lower-than-expected earnings of tech firms after their recent reporting season. This was in stark contrast to the 13.6% gain in the benchmark FBM KLCI so far this year.

With stocks like ViTrox Corp Bhd (KL:VITROX) and UWC Bhd (KL:UWC) bashed down by more than 40% since hitting their peaks this year, should investors catch a falling knife?

Although valuations may not look cheap for now due to the market’s cyclical downturn, long-term investors or those betting on a pickup in tech demand may see the sell-off as a buying opportunity.

Data from the Semiconductor Industry Association show that global semiconductor industry sales growth remained in positive territory in July — expanding 18.7% year on year to US$51.3 billion and rising 2.7% month on month from US$50 billion in June. Looking ahead, global semiconductor sales are projected to increase 16% in 2024 and 12.5% in 2025.

Analysts believe the tech sector will continue to grow on the back of continued capital expenditure investments by tech giants. That said, investing in the current environment is not without its risks. One of them is the appreciation of the ringgit, which will weigh on export earnings.

Since the pandemic, tech has been one of the most favoured sectors among the investing fraternity. The key question now is, are investors willing to pay premium valuations moving forward?

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