KUALA LUMPUR (Jan 16): Malaysia’s technology sector is poised for stronger growth in 2026, driven by a global semiconductor upcycle led by artificial intelligence (AI), rising memory demand and higher capital spending, according to RHB Investment Bank.

RHB said global industry bodies have sharply raised their forecasts for next year, signalling a shift from a narrow recovery to a broad-based expansion. 

The Semiconductor Industry Association (SIA) now expects global semiconductor sales to grow 26% year-on-year in 2026, reflecting stronger demand across multiple chip categories including logic, memory, automotive and industrial applications.

Separately, industry group SEMI lifted its forecast for global semiconductor equipment sales to US$145 billion in 2026, reflecting higher spending on chipmaking and testing capacity as demand for AI-related and advanced chips accelerates.

"This broader-based recovery is already evident in the improving orderbooks, revenue growth and earnings trends reported by many local technology names," RHB said in a note on Friday.

While the initial rebound was driven mainly by high-end AI chips and memory, the recovery is now spreading to automotive, industrial and consumer electronics, widening the earnings base for local players.

Outsourced semiconductor assembly and test (OSAT) firms are also set to see rising utilisation as chip volumes increase, although the pace of recovery may vary by company.

Electronics manufacturing services (EMS) providers have begun to see order improvements, especially in data centre and industrial products, although customer caution remains due to macroeconomic uncertainty. 

Meanwhile, software and digital services firms are positioned for structural growth driven by digitalisation, cloud adoption and cybersecurity spending.

Despite the improving fundamentals, RHB said valuations remain undemanding. The Malaysian technology sector is trading at about 22 times forward earnings, below its historical average, even as consensus forecasts point to more than 50% earnings growth in FY2026. 

The bank noted that smaller and mid-capitalisation technology stocks offer greater upside, as their improving earnings have yet to be fully reflected in share prices.

RHB maintained its 'overweight' call on the sector, while highlighting Malaysian Pacific Industries Bhd (KL:MPI) and CTOS Digital Bhd (KL:CTOS) as its top picks.

The bank also named Coraza Integrated Technology Bhd (KL:CORAZA) and JHM Consolidation Bhd (KL:JHM) as high-conviction small-caps.