Analysts have foreseen recovery for Malaysia’s technology sector next year, underpinned by factors including artificial intelligence (AI) infrastructure investments.

CIMB Securities said in its recent report that it expects Malaysia’s technology sector revenue to grow by an average of 25 percent in 2025 to 2026 (versus +2 percent in 2024), driven by a broader recovery in the global semiconductor market, underpinned by AI infrastructure investments and a pickup in the inventory replenishment cycle.

“We forecast a 17 percent sector net profit compound annual growth rate (CAGR) (2023 to 2026), with the outsourced semiconductor assembly and test (OSAT) and electrical muscle stimulation (EMS) sectors outperforming in the first half of 2025,” the research house said.

It is noted that the World Trade Semiconductor Statistics (WSTS) recently upgraded its global semiconductor sales growth forecast for 2024 to 19 percent from 16 percent year on year, but slightly lowered its 2025 growth forecast to 11.2 percent from 12.5 percent.

WSTS attributes the 2025 growth outlook to resilient demand from the logic and memory segments, driven by increasing investments in AI infrastructure.

The ongoing AI revolution is expected to propel the global semiconductor market to achieve record sales in 2024 to 2025.

Meanwhile, SEMI projects the semiconductor equipment market to expand by 17 percent in 2024 and by a further 15 percent in 2025, driven by new fabs investments and capacity expansion in the memory segment, owing to the growing demand for faster processors and memory storage in AI training and inferencing.

Philip Capital, on the other hand, said in its recent report that the US–China trade war and trend of supply chain diversification will continue to drive long-term structural growth in the EMS sector.

The research house noted that the sector will also be driven by rapid growth in AI adoption.

As geopolitical uncertainties continue to reshape global supply chains and the demand for AI-driven applications surges, it noted industrial EMS players are well-positioned to capture a share of this growing market.

“The technology sector appears to have bottomed out, signaling a gradual recovery in earnings,

“We foresee stronger earnings momentum in 2025, with sector earnings growth of 69.5 percent year on year as the semiconductor cycle turns,” it said.

Philip Capital prefers industrial players in the EMS sector over consumer electronics, with the former better positioned to ride on the AI boom and less susceptible to any global economy slowdown.

While the focus is expected to remain on the AI supply chain, the research house is favoring long-term secular trends in data centers, automotive, and solar, with a preference for front-end exposures.

While expecting cyclical and structural challenges for back-end semicon (automated test equipment [ATE]/outsourced semiconductor assembly and test [OSAT]) to persist into 2025, Maybank Investment Bank said in its recent report that it remained optimistic on Malaysia’s 2026 technology prospects.

According to the research house, the growth momentum for front-end semicon is expected to continue unperturbed into 2025.

On EMS, it maintained a cautiously optimistic view for 2025, supported by the ongoing global supply chain shifts and the adoption of disruptive technologies.

As the only sub-sector that has seen meaningful 2024 traction in AI/DC-related customer orders, the key focus for 2025 will be on capturing new growth opportunities from new products/customers, particularly in AI-driven technologies and multinational corporations (MNCs) seeking to diversify supply chains away from countries subject to international trade barriers, said Maybank.

It noted the sector’s further growth lies in the local EMS players who have recently expanded production capacities and enhanced their capabilities to cater for higher-value jobs.

“We remain positive on the long-term outlook for the sector, in view of the recent rise in foreign direct investments,” it said.

Its outlook for the Malaysian software space also remains positive amidst favorable structural tailwinds in relation to digital adoption.

According to Maybank, the positive momentum (and a thematic) will be supported by the expected introduction of the high-growth high value (HGHV) blueprint for digital-based industries in 2025.

It believes the blueprint will detail sub-sectoral roadmaps to intensify the development of Malaysia’s start-up ecosystem and lay the foundations to turn Malaysia into an attractive investment hub for global tech companies.

Meanwhile, CGS CIMB said in its recent report that China remains an important market for Malaysia’s technology companies.

According to the research house, the continued China decoupling efforts by the US government is contributing to greater degree of self-sufficiency for China’s semiconductor industry, which could lead to greater demand for Malaysian tech players’ products and services to the customers based in China.

“That said, we think pricing competition is relatively more intense in the market, which may weigh on the overall margins,” it said.

Hong Leong Investment Bank Research also in its recent report reckoned that proliferation of the China+1 strategy would benefit Malaysia’s EMS sector as brand owners shift/diversify their manufacturing away from China.

According to the research house, at least four foreign tech giants have announced plans to invest in Malaysia – Microsoft ($2.2 billion), Google ($2 billion), ByteDance ($2.1 billion) and Oracle $6.5 billion) – reflecting the country’s ability to court foreign direct investments (FDIs) from both sides of the divide.

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