This article first appeared in Capital, The Edge Malaysia Weekly on November 3, 2025 - November 9, 2025

AFTER a steep sell-off earlier this year triggered by US-led chip sanctions and tariff threats, Malaysia’s semiconductor sector has come roaring back. The Bursa Malaysia Technology Index — which tracks 49 counters and is heavily weighted towards semiconductor names — has surged more than 60% from its April low, reclaiming the critical 63-point level that has served as a key support since March 2022.

The rally has sparked cautious optimism among investors and industry watchers. Is this the start of a new up cycle or merely a technical bounce against a backdrop of unresolved macro and geopolitical risks?

Market sentiment appears buoyed by two key developments: stronger-than-­expected earnings by early reporters UWC Bhd ­(KL:UWC) and ViTrox Corp Bhd (KL:VITROX), and positive signals from the US government at the Asean Summit last week in Kuala Lumpur. While no formal agreement was signed, industry players say Malaysian semiconductor exports continue to enjoy preferential treatment under reciprocal trade arrangements, which is a critical factor in maintaining competitiveness.

ViTrox co-founder and senior executive vice-president Steven Siaw Kok Tong describes the group’s results for the third quarter ended Sept 30, 2025 (3QFY2025) as a milestone — it delivered record revenue and a more than 50% surge in earnings to RM34.7 million. Growth was led by artificial intelligence (AI), advanced packaging, automotive and enterprise computing.

“Our relentless investments in market and product development are bearing fruit,” says Siaw. “AI remains a powerful growth driver, with billions being invested by hyperscalers to build infrastructure for exponential application growth.”

UWC’s deputy group CEO Matin Ng Chin Liang echoes the upbeat tone. The company posted a 43.5% jump in revenue and a sevenfold surge in net profit to RM16.46 million in the fourth quarter, reflecting a sharp rebound in semiconductor equipment demand after months of subdued sentiment.

When asked about the selldown in the early part of the year, Ng explains: “The initial sell-off was largely driven by tariff fears and broader risk aversion. Since then, we have seen a meaningful recovery in customer orders and utilisation levels.”

Siaw, meanwhile, characterises the early slump as “a knee-jerk reaction to geopolitical uncertainty”, adding that clearer policy signals and the deferment of tariffs have helped investors refocus on the fundamentals.

During the Asean Summit, the US delegation hinted at goodwill-based exemptions for Malaysian semiconductor exports. While no deal was formalised, the absence of punitive tariffs — previously threatened to be as high as 100% to 300% — has helped stabilise investor confidence.

“At present, there is no impact on the semiconductor industry,” Ng says, citing remarks by Malaysia’s Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz. “Our exports remain exempt from US tariffs, which is critical to sustaining our competitiveness in global supply chains.”

He adds that while the ongoing review of Section 232 of the US Trade Expansion Act introduces some uncertainty, constructive engagement between both governments “can lead to a favourable and stable outcome for the semiconductor ecosystem”.

Other industry leaders say signs of recovery are emerging along the semiconductor value chain, driven by renewed capital spending and structural demand in high-growth verticals.

QES Group Bhd (KL:QES) co-founder and managing director Chew Ne Weng notes that the sector is benefiting from an upgrade cycle in frontier technologies. “We’re seeing continued recovery, especially in tech stocks riding the wave of AI and high-bandwidth memory (HBM) demand.”

Chew adds that while Malaysia is gaining from spillover in advanced packaging and mass storage, major capacity expansion remains concentrated in Taiwan, South Korea, Japan and the US.

“Most Asean countries are seeing spillover effects as firms prepare capital expenditure for 2026, spurred by the proliferation of data centres,” he notes. “Based on current trends, we expect the broader tech market to continue growing into what could be a very strong 2026.”

He also agrees that the easing of tariff tensions has helped stabilise sentiment. “The uncertainties stemming from the Trump administration’s tariff threats have calmed in recent months.”

Test solutions providers are also seeing more predictable conditions. CEO of newly listed THMY Holdings Bhd (KL:THMY) Ooi Can Nix says customers are resuming capital spending in manufacturing automation, digitalisation and AI-related projects.

“This benefits players like us,” he says. “We expect a steadier operating environment and more predictable utilisation rates in the coming quarters.”

Ooi adds that Malaysia’s role in the global value chain remains resilient, supported by structural demand in electrical & engineering (E&E), digital transformation, automotive, telecommunications and industrial automation.

Penang-based THMY is an automated test solutions provider for E&E products. It made its debut on Bursa Malaysia on Oct 23.

From a market perspective, analysts say the rally is earnings-driven, underpinned by AI-related investment and improved risk sentiment.

“The sharp sell-off earlier this year reflected fears of a full-blown trade war,” says Tradeview Capital chief investment officer Nixon Wong Gok Hey. “The rebound since April is largely due to better-than-expected earnings and continued order wins from major tech names, with AI and data centre demand offsetting weakness in consumer electronics.”

Wong adds that institutional buying has returned as interest rate expectations turn more dovish. “There’s still room for moderate upside if earnings momentum holds, particularly in AI, cloud infrastructure and automation. But lingering uncertainty could cap valuations, especially for companies exposed to both US and China demand.”

New Paradigm Securities head of research Ben Shane Lim says the recovery is “heavily skewed to AI-related demand”, while consumer electronics remains soft.

“AI investments have been relatively inelastic and largely excluded from tariffs,” he explains. “That’s kept demand resilient despite geopolitical noise.”

Lim describes ViTrox’s performance as “especially impressive” given currency headwinds and short lead times. “Deferred capex (capital expenditure) and the upgrade cycle for leading-edge chips are driving demand for capital goods,” he says, adding that equipment makers like ViTrox and UWC are best positioned for this phase.

“The next tier includes service providers like Frontken [Corp Bhd] (KL:FRONTKN), benefiting from higher volumes from end-customers like TSMC. The least leveraged group may be OSATs (outsourced semiconductor assembly and test companies) still tied to consumer electronics.”

Despite the strong rebound, some caution is warranted. The Bursa Malaysia Technology Index has climbed 21.13% over the past three months, with several component stocks gaining more than 50%. Yet, valuations have expanded sharply — the index now trades at a forward price-earnings ratio (PER) of 25.25 times, up from 20.7 times three months ago.

Bloomberg data shows that while analysts have raised earnings forecasts for most heavyweight semiconductor stocks, share prices have outpaced target valuations. Some argue that premium multiples are justified by the rare exposure to global AI tailwinds.

Still, elevated valuations raise the risk of disappointment. Several of the largest semiconductor-related names are now trading at a forward PER of close to 30 times, with some approaching 50 times.

Despite uneven recovery across subsectors, analysts believe Malaysia’s semiconductor ecosystem is on a firmer footing. “The sector appears to be entering an early up cycle, led by test and measurement, precision engineering and back-end equipment suppliers,” says Wong. “If global semiconductor capex continues to recover, local players could see improving order flows and margins in the coming quarters.”

Nevertheless, industry players remain wary of external shocks, ranging from geopolitics to supply chain shifts and policy pivots. “We’re not out of the woods yet,” says one executive. “But the signs are encouraging and the fundamentals are starting to realign.”

As ViTrox’s Siaw puts it: “AI is still in its infancy in terms of investment, development and deployment. There’s still plenty of room for growth, especially as the sector positions itself for the exponential expansion of AI-driven applications worldwide.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.