Kenanga Downgrades Malaysia Tech Sector to Neutral Amid Intensified Global Risks and AI-Driven Memory Crunch

Kenanga Research has downgraded its rating on Malaysia's technology sector from overweight to neutral due to escalating external risks.

The firm highlighted intensified global memory tightness, supply-chain vulnerabilities, and persistent cost pressures as primary concerns for the sector.

US Tech Volatility and Spillover Effects

Volatility in the US technology sector, driven by higher oil prices and inflation fears, is expected to pressure valuations, especially for high-growth firms.

Any setbacks in AI adoption could trigger widespread de-rating across interconnected supply chains, amplifying downside risks.

Supply Chain Fragility and Geopolitical Tensions

Critical materials like substrates and leadframes face disruptions from geopolitical chokepoints, exacerbated by recent Middle East tensions raising energy and freight costs.

Broad cost inflation, fueled by memory shortages and FX volatility, is squeezing margins, particularly in commoditized electronics manufacturing services.

Robust Global Semiconductor Growth

Despite challenges, the global semiconductor market remains on a strong upcycle, with January 2026 sales hitting $83.7 billion, up 46.1% year-on-year.

Forecasts predict over 25% growth in 2026, pushing industry sales toward $975 billion, supported by AI, high-performance computing, and 5G.

However, AI workloads are prioritizing high-bandwidth memory for servers, creating shortages for consumer devices like smartphones and PCs.

This zero-sum dynamic is hiking costs across electronics, prompting cuts in shipment forecasts for smartphones and PCs.

Memory-Led Equipment Boom and AI Evolution

Memory investments will drive wafer fabrication equipment growth, comprising 65-70% of capex through 2027.

AI is advancing toward agentic systems capable of autonomous tasks, shifting investments from capabilities to sustainable monetization.

For Malaysia's tech sector, these uneven benefits underscore the need for caution amid a structurally positive but risky landscape.