KUALA LUMPUR (June 8): Analysts have flagged overvaluation of tech stocks, adding that the recent rally may have priced in optimism "too quickly".

Kenanga Research noted that while the Philadelphia Semiconductor Index (SOX) has gained 9.4% over the past month, 59.6% over three months and 72.5% year to date, Malaysia’s Technology Index has risen 13%, 36% and 30% over the same periods. 

"Such rapid gains suggest that near-term optimism may have been priced in too quickly, leaving the sector more vulnerable to profit-taking, sector rotation and valuation compression."

"We advocate partial profit-taking on trading positions after the recent sharp rally, while maintaining core exposure to fundamentally strong technology names. This is not a call to exit the sector, but a recommendation to manage near-term risk more actively as valuation sensitivity rises," the house said in a note.

The research firm recommended using both fundamentals, namely valuation bands, five-year standard deviation levels and technical analysis, to identify potential support levels and re-entry points. 

"This framework provides investors with clearer reference points should a sector pullback materialise, while preserving exposure to the longer-term AI and semiconductor growth cycle," it added.

Kenanga said given that Inari Amertron Bhd (KL:INARI), Kelington Group Bhd (KL:KGB), Malaysian Pacific Industries Bhd (KL:MPI), Oppstar Bhd (KL:OPPSTAR) and Unisem (M) Bhd (KL:UNISEM) have each surged by more than 50% over the past three months, a healthy pullback would not be surprising should sector momentum soften.

"We continue to like the front-end names KGB, UWC Bhd (KL:UWC), Frontken Corporation Bhd (KL:FRONTKN) and software name Infomina Bhd (KL:INFOM) due to their stronger order visibility, margin resilience and direct exposure to front-end, and AI-related supply-chain opportunities, while remaining cautious on EMS (electronics manufacturing services) names with weaker end-demand and higher foreign exchange sensitivity."

In tandem with macro headwinds, Kenanga also warned that the upcoming mega-cap technology IPO pipeline — featuring highly anticipated listings like SpaceX, Anthropic, and OpenAI — could act as a major liquidity drain and trigger a sharp pullback across existing technology equities.

Kenanga added that while structural drivers such as AI-related capex, global fab expansion, advanced packaging demand, and automation remain intact, near-term earnings delivery is becoming more uneven due to foreign exchange volatility, cost pressures, and company-specific demand conditions.

Meanwhile, Hong Leong Investment Bank (HLIB) is assessing how the planned expansion of the FBM KLCI to 50 constituents could affect sector weightings and tech inclusion in the benchmark index. Year to date, the Bursa Malaysia Technology Index has surged 30%, underscoring the rising market capitalisation of local tech names.

"While we do not view this as our base case, it remains an important external variable for the sector in the second half of 2026," HLIB said in a note on Monday.

Consequently, the research firm maintained 'overweight' for local tech sector players such as ITMAX System Bhd (KL:ITMAX), UWC, Frontken, and Unisem, as these tech-players remain the firm’s top picks to capture the semiconductor upcycle in the second half of 2026 and domestic expansion.

Against this backdrop, the research firm advised investors to adopt a selective approach, prioritising companies with strong order visibility, margin resilience, and direct exposure to AI-driven sectors like front-end, automated test equipment, and advanced packaging.

Concurrently, it recommends a cautious stance on EMS firms, which remain heavily impacted by weak demand and high foreign exchange sensitivity.