Positive Q2 earnings lift tech sector outlook

KUALA LUMPUR: Technology firms are optimistic about increasing customer demand and anticipate capacity expansion by 2027, following a robust second quarter (Q2) earnings season. Hong Leong Investment Bank Bhd (HLIB) reported that 11 out of the 20 companies it tracks met expectations, while three exceeded consensus. Global leaders in the tech sector, such as Nvidia and Broadcom, have shown improved financial results for 2028, attributing their revenue growth to supply constraints rather than demand limitations.

Broadcom predicts that artificial intelligence (AI) revenue will double in the next two years due to strong demand for custom chips from large data centers. Meanwhile, Taiwan Semiconductor Manufacturing Company (TSMC) and major memory manufacturers have increased their capital expenditure guidance and continue to expand aggressively.

These developments are expected to ripple through the entire supply chain, particularly in equipment, precision engineering, optical and photonics, power semiconductors, and hard disk drive-related industries. Near-term, HLIB highlights Nvidia's upcoming initial public offering (IPO) as a potential indicator of AI monetization, while a potential interest rate hike by the US Federal Reserve poses a risk to investor sentiment.

However, the bank remains cautiously optimistic about the sector, keeping a "Overweight" rating, driven by the expanding semiconductor upcycle and sustained earnings momentum. HLIB recommends ViTrox Corp Bhd, UWC Bhd, and Sam Engineering & Equipment Bhd as top picks due to their strong earnings visibility and positive revision momentum.

The bank sees a buying opportunity in ITMax System Bhd, attributing the recent price decline to broader concerns surrounding politically linked stocks, despite solid earnings delivery.