This article first appeared in Capital, The Edge Malaysia Weekly on December 29, 2025 - January 4, 2026

MALAYSIAN semiconductor and technology stocks have pulled off a comeback few would have dared to call earlier this year.

From the depths of a sell-off — initially sparked by former US president Joe Biden’s Artificial Intelligence (AI) Diffusion Rule in January, and later exacerbated by US President Donald Trump’s “Liberation Day” tariffs — the sector had rebounded more than 60% from its April lows by mid-December.

Investors who had caught the turn were handsomely rewarded.

Scratch beneath the surface, however, and the rally looks less like a clean recovery and more like a relief reaction.

While Wall Street’s tech giants have pushed the Nasdaq to record highs on the back of the AI frenzy, Bursa Malaysia’s Technology Index is still down 12% for the year.

Nvidia Corp made history on Oct 29 as the first company to hit an astounding market valuation of US$5 trillion (RM20 trillion), powered by a remarkable rally that placed it at the heart of the global AI boom.

Since the launch of ChatGPT in 2022, Nvidia’s shares have soared twelvefold, propelling the S&P 500 to record highs and sparking debate over whether soaring tech valuations point to the next major bubble.

Back home, the strong recovery in local tech shares has been fuelled mainly by returning risk appetite, fund flows and price-earnings expansion, rather than a broad-based improvement in earnings. That disconnect shows up clearly in the numbers.

According to data compiled by TA Securities, the aggregate core earnings of the technology sector within its coverage universe, which includes Inari Amertron Bhd (KL:INARI), Malaysian Pacific Industries Bhd (KL:MPI), Unisem (M) Bhd (KL:UNISEM) and Coraza Integrated Technology Bhd (KL:CORAZA), had increased 4% year on year, from RM426 million in the first nine months of 2024 (9M2024), to RM443 million in 9M2025.

Suffice to say, earnings in 2025 across much of the sector have underwhelmed, particularly among companies tied to older segments such as smartphones and consumer electronics. Analysts have cut forecasts, and management teams remain cautious.

As the sector heads into 2026, much of the trading profit from the rebound may already have been made. Malaysia continues to benefit from supply chain shifts away from China and its neutral positioning in the US-China tech cold war, but valuations are now stretched and expectations are high.

With talk of an AI bubble growing louder, investors are no longer paying just for the story. The next leg of performance will hinge on a tougher test — whether earnings can finally catch up with share prices in a world where trade policy is unpredictable and disappointment carries a higher price.

While semiconductors were largely exempted from the existing Trump tariffs, some electrical and electronic (E&E) products were not, raising concerns about potential demand weakness and supply chain disruptions.

Adding to the uncertainty, Trump repeatedly threatened sectoral tariffs on semiconductors imported from countries without US-based manufacturing, initially suggesting 100% before later raising the possibility to as high as 200% to 300%.

AmInvestment Bank Bhd head of equity research Paul Yap sees the tech stocks’ relief rally as largely fund-flow driven.

“Heavy selling post-Liberation Day pushed cash levels up sharply. Once tariff impacts proved milder than feared, funds quickly redeployed into risk assets, fuelling the sharp rebound in the tech sector,” he tells The Edge.

Despite the strong share price rebound, Yap observes that 2025 earnings have largely disappointed.

End-consumer demand remains soft, prompting consensus to cut earnings by 35% for electronic manufacturing services (EMS) and 5% for outsourced semiconductor assembly and test (OSAT).

“Equipment makers have been the standout, signalling robust capital expenditure (capex) momentum as deglobalisation trends continue to push capacity diversification,” he elaborates.

AmInvestment Bank has a “neutral” call on the local technology sector.

“With cash levels no longer elevated, near-term fund-flow tailwinds are limited, making selectivity essential. Growth is unlikely to be broad-based and remains concentrated among names with AI exposure, where hyper-scaler capex will be a key indicator of whether momentum can hold.

“At the same time, we see rising value in bombed-out names. In an uncertain environment, management quality and strategic execution will be the critical differentiators in identifying which companies will rebound when the cycle turns,” Yap remarks.

Boutique fund house Tradeview Capital Sdn Bhd chief investment officer Nixon Wong Gok Hey recalls that the initial sell-off happened because investors feared a much bigger trade war after the new tariffs were announced.

Global chip stocks dropped sharply, and Malaysia’s tech names were dragged down too, mostly because of negative sentiment, even though Asean exports generally face lower US tariffs than China. The Malaysian government had negotiated a trade agreement with the US, reducing the tariff rate to 19% from an initial 25%. On top of that, semiconductors were generally exempted from the tariff measures.

“The subsequent rebound in Malaysian semiconductor stocks looks more like a relief rally than a full return to strength. Markets realised the worst-case tariff scenario and global recession fears didn’t materialise, and this helped share prices recover.

“On top of that, investors are betting on an upcoming recovery in the global chip cycle with restocking after last year’s slowdown, plus the continued boom in AI and data centre spending,” Wong tells The Edge.

He highlights that Malaysia is also benefiting from companies diversifying away from China. Thanks to Malaysia’s neutral stance, global players are shifting more OSAT, testing and advanced packaging work here, and that adds to the optimism.

“But more importantly, most of the rebound came from higher price-earnings ratio (PER) expansion rather than strong earnings. Share prices rose because investors expect better results moving forward, not because companies have already delivered them strongly,” he points out.

Compared with global tech leaders, including the American AI chip giants, Taiwanese foundries and South Korean memory makers, the Malaysian tech names badly underperformed in 2023 and 2024.

Thus, part of this year’s strong rebound is simply catching up from a low base — take UWC Bhd (KL:UWC) or MPI, for instance.

Still, says Wong, valuations are believed to have risen much faster than fundamentals. “That means the sector is now more exposed to disappointment if earnings don’t meet expectations. And with the ringgit strengthening recently, a negative for exporters, Malaysian tech stocks may face additional pressure going forward,” he warns.

Wong points out that while overall earnings came in mostly in line to slightly better, companies remained cautious in their outlook.

The sector benefited from a slow but steady recovery in demand for smartphones, cars and industrial electronics. There were more positive earnings surprises than disappointments, but several management teams still warned about tariff risks.

“Companies also reported that order visibility has improved. However, they continue to face margin pressures from higher wages and energy costs, now made worse by the stronger ringgit, which reduces export earnings,” he reiterates.

Nevertheless, companies focusing on higher-value niche solutions, like Frontken Corp Bhd (KL:FRONTKN), stood out as strong performers.

“Frontken has enjoyed solid revenue and profit growth. This is thanks to the pickup in activity at chip factories and increased investment related to AI,” says Wong.

While some OSAT companies also benefited, especially those tied to automotive or industrial chips, it is important to note that their earnings recovery came from better-than-feared utilisation rates and tight cost control, rather than big jumps in sales.

On the weaker side, he says, companies exposed to older segments like personal computers (PCs) and smartphones recovered more slowly. Some even missed expectations due to weak end-demand and tough price competition — Inari being an example.

“With valuations already high, the sector doesn’t have much room for disappointment. Heading into 2026, investors will need to see real earnings growth to justify the currently stretched PER, especially if there are more negative headlines around tariffs or export controls,” Wong stresses.

TA Securities Holdings Bhd research manager Tony Chan Mun Chun observes that the global AI boom has yet to translate into meaningful benefits for Malaysian technology players, as most continue to rely heavily on legacy consumer, industrial and automotive segments, with limited exposure to higher-value AI-related products.

“Overall, earnings have been relatively disappointing so far, with only a few companies managing to beat expectations. Customers remain generally cautious, particularly across the aforementioned legacy segments,” he tells The Edge.

Chan says local technology companies that have performed relatively well in 2025 are largely those with indirect exposure to AI-related demand through their customers such as Taiwan Semiconductor Manufacturing Co Ltd (TSMC).

“Looking ahead, we expect the positive momentum in the semiconductor market to be sustained, with AI-related demand continuing to serve as the primary growth driver. We view AI as a structural shift, given its ability to generate tangible commercial value by enabling real-world applications that were not feasible a decade ago. As such, AI represents a meaningful long-term game changer for the global technology landscape,” he says.

That said, TA Securities maintains a “neutral” stance on the technology sector for 2026, primarily due to the ongoing overhang from US semiconductor policy, given that Trump has repeatedly signalled his intention to impose “fairly substantial” tariffs on semiconductor imports.

TA Securities does not expect a broad-based positive trend across the local technology sector, but rather a more selective investment theme.

“We expect companies with exposure to AI-related demand, such as Frontken and ViTrox Corp Bhd (KL:VITROX), to perform relatively better in terms of earnings performance, while players with heavier reliance on legacy products may lag.

“In addition, selected companies such as Unisem, MPI and Coraza are partly benefiting from the trade diversion theme. Nonetheless, investors should remain mindful of valuation risks for certain technology stocks, as well as the potential impact of a stronger ringgit on earnings,” says Chan.

Tradeview’s Wong is of the view that Malaysia’s National Semiconductor Strategy (NSS) — aimed at pushing the country deeper into the global chip supply chain, especially in higher-value areas such as chip design, advanced packaging and developing specialised talent — will be a boon for the local technology sector.

At the same time, Malaysia’s balanced position between the US and China makes it an attractive China+1 destination as companies shift production out of China. By tightening compliance on US origin AI chips, Malaysia is also building credibility with the US and major chipmakers. In the long run, this may help draw in more data centre investments and higher levels of foreign direct investment (FDI) into the tech sector.

“Against this backdrop, higher-value service and engineering companies are well positioned to benefit. The same goes for firms whose customers are US, European or Japanese chipmakers that use Malaysia as a neutral production base, and who can tap NSS incentives to move into advanced packaging and testing,” he says.

Wong adds that local players that manage to expand into chip design, high-value analogue or power chips, or specialised sensors also stand to gain from both the NSS push and long-term trends in AI and the Internet of Things (IoT).

On the flip side, investors should be more cautious about low margin consumer EMS names and companies that are heavily exposed to China exports or with a sizeable production plant base in China, given the ongoing trade and regulatory risks.

As Malaysian tech stocks enter 2026, investors will be keeping their fingers crossed that earnings quickly catch up with the lofty valuations that a relief rally and AI optimism have priced in.

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