Malaysia's Tech Stocks Ride the AI Wave But Can Earnings Keep Up?

By Mark Lim

Tuesday, 05 May 2026 · Petaling Jaya

Malaysia's technology sector is in the midst of a powerful rally, with semiconductor-related stocks posting sharp gains as investors bet on the country's place in the global artificial intelligence supply chain. Leading the charge are automated test equipment makers, whose fortunes are closely tied to the health of the broader chip industry and right now, that industry is booming.

UWC Bhd and Vitrox Corp Bhd, both key players in the ATE space, climbed 6% and 5% respectively in a single session, with Malaysian Pacific Industries Bhd and Unisem (M) Bhd adding 4% and 3.3%. Precision engineering counters fared even better Kobay Technology Bhd surged nearly 9%, Northeast Group Bhd rose around 6%, and Ambest Group Bhd gained 5%, pointing to broad-based appetite across the segment.

The logic behind the rally is straightforward, according to Peter Lim Tze Cheng, chief research officer at Trident Analytics. When AI spending rises, it sends a ripple through the entire semiconductor value chain from chip fabrication to outsourced assembly and testing, and ultimately to the machinery that makes it all possible. "When there is more business for foundries, there is more business for Osat companies, which in turn drives demand for machines and equipment," he said.

Upcycle in motion

Lim frames the current rally not as a sudden spike but as the continuation of a recovery that took root last year, following a prolonged downturn across 2023 and 2024. He expects the upswing to last well beyond a single earnings season. Precision engineering and metal fabrication firms are already reporting strong order flows, he said, and the catalyst global data centre expansion shows no sign of letting up. Industry spending on AI infrastructure has roughly doubled to around US$200 billion this year alone.

"This present uptrend is just the beginning. We are going to see a very strong upcycle in the semiconductor sector for the next three to five years."

A fund manager, who asked not to be named, shared a similarly upbeat view. He estimates that computer numerical control players could post earnings growth of at least 30% compounded annually over the next two years, with the broader technology sector tracking a sector-wide rate of around 20%. "The rally is justified with more upside," he said, placing CNC companies first in line to benefit, followed by Osat, ATE and electronics manufacturing services firms.

The regional backdrop lends weight to the optimism. Asia's tech-heavy benchmarks surged in tandem, with South Korea's Kospi jumping more than 5% and Taiwan's Taiex climbing 4.6%. Chipmakers SK Hynix and TSMC gained 13% and over 7% respectively. Back home, the Bursa Technology Index is up 15% year-to-date, having added 3% in a single day. The catalyst: blowout results from US mega-caps including Alphabet, Apple and Amazon, with Alphabet's shares leaping more than 10% on the back of strong cloud and AI revenue.

A more cautious read

Not everyone is convinced the numbers fully support the excitement. Nixon Wong, chief investment officer at Tradeview Capital, acknowledges that the semiconductor upcycle is real driven by AI, data centres and high-performance computing but warns that valuations have raced ahead of what earnings can currently justify. "Valuation expansion and AI hype are doing a lot of the heavy lifting," he said.

Wong points to several near-term headwinds: weak seasonal factors, foreign exchange pressure, and the fact that most Malaysian tech companies have limited direct exposure to the leading-edge AI chips generating the most excitement. The bulk of local equipment players are involved in servers, advanced packaging and imaging segments that benefit from higher capital expenditure, but less directly than pure AI chip suppliers.

He also draws a pecking order among beneficiaries. ATE firms sit at the top, since the complexity of AI chips demands more rigorous testing. Osat companies with advanced packaging capabilities follow, given their critical role in AI chip assembly. CNC and automation players are more exposed to the broader capex cycle and therefore carry more risk if spending softens. EMS firms, with limited AI-specific exposure, are last in line.

Early earnings signal

Some of the first quarterly results of the year offer a mixed but broadly encouraging picture. Vitrox delivered a standout performance, with net profit surging 112% year-on-year to RM51.2 million in the first quarter of 2026, while revenue climbed 89% to RM267 million, driven by demand for its automated board inspection and machine vision systems.

Unisem told a more complicated story the company slipped to a net loss of RM13.4 million despite a 10% revenue increase to RM464.7 million, weighed down by higher costs, softer utilisation and currency headwinds. Yet its guidance was striking: a 15% to 20% quarter-on-quarter jump in US dollar revenue for the second quarter, a range Kenanga Research described as unusually strong relative to the company's historical guidance patterns.

For Lim of Trident Analytics, that trajectory is the story. He attributes the delayed impact of AI on local tech earnings to a simple supply dynamic the industry was sitting on excess capacity for much of the past two years and had little reason to invest in new equipment. That cushion has now been absorbed. "Unless people suddenly stop using large language models, cloud services or other AI tools, it is hard to see what could cap the upside," he said. The machines, it seems, are only just getting started.